Report SIDBI V2 - IL&FS Clusters 3.pdfthe reviews which has been duly incorporated and has helped...

FinalFinal

Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for

MSMEs Under PPP and Private Ownerships

AcknowledgementAcknowledgementAcknowledgementAcknowledgement

This study was made possible by the funding and support from Small Industries Development

Bank of India (SIDBI) and IL&FS Clusters would like to thank SIDBI and all the officials’ thereof

who were involved in this study. We appreciate the valuable feedback received from SIDBI during

the reviews which has been duly incorporated and has helped shape this report

IL&FS Clusters also extends its gratitude to all the stakeholders such as banks, SPVs members,

and promoters with whom IL&FS Clusters have been working for several years thereby gaining

valuable experience and knowledge which have been used in preparing this report. We are also

thankful to the policy makers at the various Ministries with whom IL&FS Clusters has had the

opportunity to work in the past and continues to work.

Finally, the study team is thankful to all the colleagues at IL&FS Clusters who have over the years

worked on such common infrastructure projects for different sectors and hence were able to

contribute with their understanding. The sagacity of such experiences has proven to be invaluable

in shaping this study and incorporating the recommendations.



AbbreviationAbbreviationAbbreviationAbbreviationssss

AC Approval Committee

AMC Ahmedabad Municipal Corporation

AYUSH Ayurveda, Yoga and Naturopathy, Unani, Siddha & Homeopathy

BDS Business Development Service

BOT Build-Operate-Transfer

CA Controlled Atmosphere

CAGR Compound Annual Growth Rate

CC Collection Center

CDP Cluster Development Programme

CDSF Common Debt Service Fund

CFC Common Facility Center

CGS Credit Guarantee Scheme

CGTMSE Credit Guarantee Fund Trust for Micro and Small Enterprises

CHCDS Comprehensive Handicrafts Cluster Development Scheme

CIPS Critical Infrastructure Upgradation Scheme

CLU Change in Land Use

CPC Central Processing Centre

DC Department Commissioner

DIPP Department of Industrial Policy & Promotion

DPR Detailed Project Report

DSRA Debt Service Reserve Account

EDM Electronics Systems Design & Manufacturing

EMC Electronic Manufacturing Cluster

EoI Expression of Interest

ETP Effluent Treatment Plant

FDI Foreign Direct Investment

FI Financial Institution

FPO Farmer Producer Organization

FY Financial Year

FYP Five Year Plan

GFR General Financial Rules

GIDC Gujarat Industrial Development Corporation

GMP Good Manufacturing Practices

GoI Government of India

IA Implementing Agency

IDC Interest During Construction

IICD Indian Institute of Crafts & Design

IID Integrated Infrastructural Development

IIFCL India Infrastructure Finance Company Ltd

IIUS Industrial Infrastructure Upgradation Scheme

IPR Intellectual Property Rights



IQF Individual Quick Freezing

ITCL IL&FS Trust Company Limited

ITDP Integrated Tribal Development Programme

ITP Integrated Textile Park

LIC Life Insurance Corporation

LNG Liquefied Natural Gas

MA Modified Atmosphere

MFPS Mega Food Parks Scheme

MIIUS Modified Industrial Infrastructure Upgradation Scheme

MLC Mega Leather Cluster

MMSME Ministry of Micro, Small & Medium Enterprises

MMWC Margin Money for Working Capital

MoA Memorandum of Agreement

MoFPI Ministry of Food Processing Industry

MoT Ministry of Textiles

MoU Memorandum of Understanding

MSME Ministry of Micro, Small & Medium Enterprises

MSMED Act Micro, Small & Medium Enterprises Development Act

NID National Institute of Design

NIFT National Institute of Fashion Technology

NMFP National Mission of Food Processing

NPA Non Performing Assets

O&M Operations & Maintenance

PAC Project Approval Committee

PCB Pollution Control Board

PM Programme Manager

PMA Program Management Agency

PMC Program Management Consultant

PMU Project Monitoring Unit

PPC Primary Processing Center

PPP Public Private Partnership

PSP Private Sector Participant

PSU Public Sector Undertaking

QCBS Quality and Cost Based Selection

R&D Research & Development

RFP Request for Proposal

RFQ Request for Qualification SCC Scheme for Cold Chain, Value Addition and Preservation

Infrastructure

SEZ Special Economic Zone

SHG Self Help Group

SIA State Implementing Agency

SICDP Small Industries Cluster Development Programme

SITP Scheme for Integrated Textile Parks



SLBC State Level Bankers’ Committee

SMC Scheme Monitoring Committee

SME Small and Micro Enterprises

SPV Special Purpose Vehicle

STP Solid Treatment Plant

TC Technical Committee

TRA Trust & Retention Account

TUFS Technology Upgradation Fund Scheme

UC Utilization Certificate

VGF Viability Gap Funding

VIA Vatva Industries Association

ZLD Zero Liter Discharge



ContentsContentsContentsContents

Abbreviations .......................................................................................................................................... 3

Executive Summary ................................................................................................................................ 7

Chapter-1: Introduction .................................................................................................................... 7

Chapter-2: Methodology adopted for the study................................................................ 12

Chapter-3: Significance of MSMEs in Indian Economy ..................................................... 14

Chapter-4: Major Focus Schemes Analyzed in the Study ............................................... 24

Chapter-5: Implementation Status of the Major Schemes Covered Under the

Study .......................................................................................................................................................... 51

Chapter-6: Demand Assessment for Common Industrial

Infrastructure/facilities for MSMEs..................................................................................... 84

Chapter-7: Public Private Partnerships in India ................................................................ 107

Chapter-8: Existing Legal and Regulatory Framework for PPP Projects ......... 114

Chapter-9: Legal and Regulatory Framework for Common Industrial

Infrastructure Projects.............................................................................................................. 122

Chapter-10: Special Purpose Vehicles for Common Industrial Infrastructure/

Facilities for MSMEs....................................................................................................................... 135

Chapter-11: Challenges Faced by Lending Institutions in Financing of Common

Industrial Infrastructure Projects for MSMEs ............................................................. 147

Chapter-12: Recommendations .................................................................................................. 172

Annexure-1 ............................................................................................................................................ 185

Annexure-2 ............................................................................................................................................ 186



Executive Executive Executive Executive SSSSummaryummaryummaryummary

Background and Approach

There is enough evidence to suggest that various schemes/programmes being implemented for

promotion of common industrial infrastructure projects for MSMEs in our country have not met

expectations of the policymakers. Insufficient progress of these projects has had an adverse impact

on industrial development of the country, as common infrastructure facilities are considered to be

critical in making MSMEs more efficient and competitive. The present SIDBI Report is an

attempt to develop a deeper understanding of such schemes and to gain insights into envisaged

financing models and institutional structures, especially from the perspective of lending

institutions, so as to come out with solutions to identified challenges.

Most of these schemes promoting common infrastructure projects are being implemented in the

spirit of Public-Private Partnership (PPP) and provide for grant-in-aid, for part financing of

infrastructure cost, even as ownership/management of these infrastructure facilities are vested with

groups of MSME entrepreneurs who are required to meet remaining cost of such infrastructure

projects through debt and equity. Typically, the beneficiary enterprises are required to from a

separate legal entity, as a Special Purpose Vehicle (SPV), with specific objective of

implementation/management of projects being assisted by the government agencies, either in PPP

format or even under private ownership. These projects are eligible to receive capital grant

assistance from sponsoring government agency, based on defined eligibility parameters and release

milestones.

Shift in Approach

The 10th and 11th Five Year Plans marked a significant shift in the approach to development of

these common industrial infrastructure/facilities. Both the nature and scale of these schemes got a

huge boost, with the launch of the Scheme for Integrated Textile Parks (SITP) during 10th Plan

and Mega Food Parks Scheme (MFPS) during 11th Plan. Although programmes such as

Industrial Infrastructure Upgradation Scheme (IIUS) and Micro and Small Enterprises–Cluster

Development Programme (MSE-CDP) were being implemented even before that, but arguably,

SITP and later MFPS marked an approach which gave much more ownership, management and

operational flexibility to the private sector.

Earlier initiatives such as IIUS and MSE-CDP adhered largely to the accepted PPP structure, with

ownership and control of assets remaining with the government agencies, even as operation and

management of these projects were entrusted with the beneficiary enterprises. SITP, aimed at



setting up green-field industrial parks for textile sector, made a significant departure from this

approach, and provided complete ownership and control over assets to SPV, constituting of private

sector entrepreneurs setting up units in the Park.

A similar approach was taken under MFPS, which went one step further, and allowed equity

holding, in SPV, to even those who might not set up a unit in the Mega Food Park. Moreover,

schemes such as SITP and MFPS provided for a more comprehensive funding of project

components. Under SITP, project components such as factory sheds, inter-alia, owned by SPV but

leased to individual entrepreneurs, became eligible for grant assistance and in case of MFPS,

entire civil work and plant and machinery for core processing facilities and basic enabling

infrastructure are eligible for grant funding. It is to be noted that under SITP and MFPS, the

beneficiaries need not be confined to MSMEs and even large units can be part of assisted projects.

However, there has been a rethink recently by the policymakers over implementation model for

these schemes, recognising the challenges of the SPV model. Under IIUS, revised in 2013, there is

a complete turn about in implementation approach, and projects are now to be implemented by a

state government agency instead of earlier envisaged SPV, promoted by private sector

entrepreneurs. The revised IIUS guidelines cite “serious practical difficulties” of PPP model, as the

reason for this change in implementation model.

The revised MFPS, for setting up industrial parks for food processing sector in “Hub and Spoke”

model, has also provided for state government agencies to set up these projects without going

through the SPV route, though the latter model is still expected to be the primary implementation

mechanism for these projects.

Financing Models

The financing norms and models of common industrial infrastructure and facilities have gone

under significant changes over the years even as such norms also depend largely on the industrial

sector concerned. While the amount of financial assistance available for creation of common

industrial infrastructure/facilities varies across various schemes, most of the programmes assisting

these projects envisage lending by banks and financial institutions to achieve financial closure. In

fact, many of such schemes and programmes make bank lending mandatory to ensure that projects

are not only appraised carefully but also project implementation and utilisation of funds are

monitored by concerned banks/financial institutions. On the other hand, the banks/financial

institutions find it challenging to provide loan to such projects, in absence of a defined promoter

and often diffused management and operational responsibilities. It has also been found that lack of



cohesion amongst equity holders of these SPVs often leads to delays in project implementation and

even may bring projects to a standstill. The low capacity utilisation and difficulties in recovery of

envisaged user charges are also challenges of common industrial infrastructure/facilities, which

deter many banks and financial institutions.

In view of these associated challenges, the schemes and programmes funding these projects often

provide requisite safeguards for lending institutions, in form of TRA framework, escrow account

and also confer rights on them to secure their credit against assets being financed. Such provisions

have enabled lending institutions to come forward and actively assist these common infrastructure

projects, in spite of above mentioned challenges.

During the course of the study, the schemes and programmes funding such common industrial

infrastructure projects were studied in details in terms of the various institutional structures &

implementation models and constraints in accessing finance for these projects were identified. The

study also documented the challenges faced and lesson learnt during implementation of such

projects. A risk assessment framework for appraisal of common industrial infrastructure projects

has also been developed based on the financing challenges faced by the banks/ FIs.

Key Recommendations

Based on the challenges faced recommendations have been made in the report in two categories:

I. Recommendations for Restructuring of Schemes and Programmes

II. Recommendations for Banks/ Financial Institutions

The recommendations for restructuring of schemes and programmes have been put forward with

an objective to make these schemes and projects more investment friendly and successful in the

long run. Some of the key recommendations made in this category include (a) Appropriate

restructuring of the financial assistance to ensure proper long term utilization of the created assets

and to ensure that the grant assistance may also be passed on to the entrepreneurs/units in the park

(b) Dividing grant assistance into ‘capital subsidy’ (for creation of infrastructure) and ‘interest

subvention’ facility which will be provided during an initial fixed period. The interest subvention

facility would only be provided to the SPV on yearly basis on successful operations of the

facilities/infrastructure (c) Keeping the interests of units as well as of SPV and to ensure setting up

of proper number of units, modification of the schemes by linking release of grant amount to the

leasing out of the plots to independent units (d) To ensure proper operationalization of the facilities

created, a part of the allocated grant may be carved out for specific purposes (e) Ensuring



predictability in the selection process in terms of number of the projects to be supported and the

timeline of the selection process (f) Simplification of terms and conditions for the selection and

implementation of the projects (g) Encouraging the SPVs to adopt a transparent and an

unambiguous pricing mechanism that would make the project viable and also ensure that the

assistance received from the Ministries are also passed on to the units coming up in the parks (h)

Revision of PPP model and reconsideration of the roles and responsibilities of key stakeholders by

increasing the involvement of state agencies by giving them the ownership and implementation

responsibility of the projects (i) Ensuring active involvement of banks in designing, revising and

launching of schemes and programs to support industrial infrastructure projects (j) Considering the

Industrial Parks as ‘Infrastructure Lending’ projects as RBI provides a differential treatment to a

credit facility categorized as “Infrastructure Lending”

Recommendations for Banks/ Financial Institutions have been made to increase bankability and

financing of common industrial infrastructure projects. Some of the key recommendations made in

this category include (a) Increasing the knowledge and understanding of different schemes for

common industrial infrastructure (b) Improving the quality of appraisal of projects by the banks by

developing certain standards for appraisal of such infrastructure development projects and creating

PPP cells which would deal with large common infrastructure development projects (c) Serious

appraisal and strict due diligence of SPV structure and ownership especially related to the clarity

of roles & responsibilities and management structure of the SPV (d) Clear understanding and

assessment of different types of statutory approvals and clearances during appraisal of projects by

the banks/ FIs (e) Developing innovative options in creation of security to increase the bankability

of the projects (f) Developing different project structuring options and innovative loan products for

improving bankability and risk mitigation

ChapterChapterChapterChapter----1: 1: 1: 1: IIIIntroductionntroductionntroductionntroduction

The National Manufacturing Policy (NMP), launched with a vision to increase the share of

manufacturing in GDP from 16 percent to 25 percent, has acknowledged the advantages of

clustering though also noted that full benefits of agglomeration/ clustering are yet to be realized.

Government agencies have been implementing schemes/programmes for promoting common

industrial infrastructure/facilities with a twin approach. On the one hand, there are schemes

promoting both creation of such facilities in the existing industrial clusters and also on the other

there are also schemes encouraging setting up of new industrial parks and zones, often dedicated to

one industrial sector. The primary objectives of such schemes are to enhance international

competitiveness of the domestic industry by providing quality infrastructure through public-private

partnership in select functional industrial clusters or locations which have great potential to

become globally competitive. The strategy is to provide critical physical infrastructure in clusters

or industrial locations in terms of physical infrastructure (i.e., transport, roads, water, common

captive power generating units etc), information and communication technology infrastructure,

Research & Development infrastructure, common facilities centre, international marketing

infrastructure and any other physical infrastructure required and identified by the clusters to

become globally competitive. It has also been accepted by government agencies that creation of

any common infrastructure/facilities for MSMEs needs active involvement of beneficiary

enterprises, to be truly effective. A major highlight of such schemes is that they are public-private

partnership initiatives, which recognises the role of private sector participation in infrastructure

development based on local need, so that the entire effort is user-driven with the support of the

government. However in spite of Government grants being made available for common

infrastructure, MSMEs face serious challenges in mobilizing the industry contribution because of

their inherent limitations at individual unit level, and the fact that individual units have to raise

resources from their individual balance sheets, which puts additional burden on them. Hence there

is a critical need for adequate support from banks and financial institutions for such cluster

infrastructure projects. The role of SIDBI becomes significant here not only as a financial

institution but also as the apex agency for promotion and development of MSMEs in the country. It

is with this understanding that this report has been prepared to understand the financing challenges

of such common infrastructure projects and to recommend possible ways of overcoming such

challenges.



ChapterChapterChapterChapter----2: 2: 2: 2: MethodologyMethodologyMethodologyMethodology adoptedadoptedadoptedadopted forforforfor thethethethe studystudystudystudy

The objective of the study is to identify financing challenges for common industrial infrastructure

for MSMEs in India. There is a thrust by the Government of India on carrying out the

implementation of such industrial infrastructure in a public –private- partnership mode. Thus to

achieve the said objective, a detailed study of the schemes currently being implemented by the

different Ministries and analysis of its effectiveness were carried out. On this basis, a set of

recommendations have been proposed for improving the schemes in terms of easing financing

hurdles. The above two activities were carried out in the following phases:

Phase I: In this phase, the ten major schemes to be analysed for this study were shortlisted. After

having shortlisted these schemes, their implementation status along with their demand were

analysed. The shortlisted schemes are as follows:

� Scheme for Integrated Textile Parks

� Mega Food Parks Scheme

� Industrial Infrastructure Upgradation Scheme

� Micro and Small Enterprises–Cluster Development Programme

� Scheme for Development of AYUSH Clusters

� Comprehensive Handicrafts Cluster Development Scheme

� Scheme for Cold Chain, Value Addition and Preservation Infrastructure

� Mega Leather Cluster Scheme

� Electronic Manufacturing Clusters Scheme

� Scheme for Setting up Plastic Parks

As the major focus of this report is to understand the adaptability of PPP models with such

schemes, the design of these schemes were compared against the standard PPP models.

Phase II: In this phase, the legal and regulatory framework of general PPP projects was analysed.

The analysis was limited to the factors directly related with the implementation of the identified

schemes

Phase III: In the final phase, the study concentrated in understanding the Special Purpose Vehicle

(SPV) model. The associated risks and challenges with this model were analysed and understood.

The risks and challenges were categorised in terms of design, financial and operational aspects. In

this phase, the study examined in detail the envisaged financial structuring under the said

schemes/projects including identification of revenue streams and utilization thereof, loan

covenants, debt service comforts like reserve accounts, escrow & TRA framework etc. Based on



this, finally the recommendations were made to increase the bankability and financing of the

common industrial infrastructure projects for MSMEs.

Over the years, IL&FS Clusters have conducted numerous evaluation and feasibility studies for

common infrastructure related projects, vision documents and working group reports. IL&FS

Clusters has been a pioneer in this field who had promoted the idea of public private partnership

based common industrial infrastructures since 2005 and has been the Program Management

Agency for several major schemes since then. This study has delved into the repository of all such

experiences of IL&FS Clusters and extracted information that has been incorporated at various

stages of the report. Overall, the analysis was largely based on IL&FS Clusters’ experiential

learning over the years which were documented in various public and private sources. To analyse

the current status of these projects, inter team discussions and brain storming session were carried

out within the IL&FS Clusters division. In-depth secondary research was undertaken from various

sources like Ministry websites, Working Group Reports for relevant Ministries and Policy Papers

thereof. The insight gained from the continuous process of interaction with different Ministries,

various promoters/ members of the SPVs and banking officials have also been utilized in the

preparation of the report.

ChapterChapterChapterChapter----3333: : : : Significance of MSMEs in Indian Significance of MSMEs in Indian Significance of MSMEs in Indian Significance of MSMEs in Indian

EconomyEconomyEconomyEconomy

With a total number of 448 lakh units and employing more than 100 million people,1 the MSME

sector is an important segment of Indian economy. The sector has a share of about 40% in

manufacturing output and 45% in total exports of the country, and therefore contributes

significantly to economic development as well as social development. MSME is the biggest

employment provider in the country after agricultural sector. It also comprises the largest share

(90%) of the total industrial units of the country. According to Ministry of Micro, Small &

Medium Enterprises, Government of India (MMSME) the number of MSME units (both registered

and unregistered) grew at a CAGR of 4.5% during FY 2007-11. Investments by MSMEs have

increased by 11.5 % during the same period. Employment generation capacity of this sector has

increased recording a CAGR of 5.3% since FY 2007 signifying the increasing labour intensive

nature of the sector. Further, nearly 50% of MSMEs2 are owned by disadvantaged groups of

society which indicates the inclusiveness of this sector. Despite facing intense competition since

year 1991 due to liberalization policies of India, this sector has survived and thrived well,

reflecting the capability to compete in International markets. The potential of this sector to grow

further and play more vibrant role in the country has also been well established and recognized by

policy makers

Annual report 2012-13, Ministry of Micro Small, Medium Enterprises

As per Micro, Small & Medium Enterprises Development (MSMED) Act, 2006, micro, small &

medium enterprises are defined as per the investment in plant & machinery (in case of

manufacturing industries) or on equipments (in case of service enterprises). The scope & coverage

1 Annual report 2012-13, Ministry of Micro Small, Medium Enterprises, GoI

2 Report of The Working Group on MSMEs Growth for 12th FYP-Ministry of Micro, Small & Medium Enterprises,

GoI

0

200

400

600

800

1000

1200Total

Working

Enterprises

(in lakhs)

Employmen

t (in lakhs) 0

500000

1000000

1500000

2000000

Market Value of Fixed Assets (in Crore)

Gross Output (in Crore)



was broadened significantly under MSMED Act, 2006, which recognised the concept of

‘enterprise’ & to include both manufacturing & services sector, besides defining the medium

sector. The present classification of these sectors, in terms of investment in plant & machinery, has

been presented in table given below:

Classification Manufacturing Sector Services Enterprises

Micro Up to Rs. 25.00 lakhs Up to Rs. 10.00 lakhs

Small Rs. 25 lakhs to Rs. 500 lakhs Rs. 10 lakhs to Rs. 200 lakhs

Medium Rs. 500 lakhs to Rs. 1000 lakhs Rs. 200 lakhs to Rs. 500 lakhs

MSMEs are considered as drivers of economic growth and equitable development globally. Its

inherent nature of being less capital intensive and more labour intensive at the same time gives an

edge to the industry. MSMEs are becoming more agile and dynamic which, in turn, promoting

innovations and adaptability to the industry to survive and thrive in recent economic downturn and

recession

The importance of MSMEs is well established in developing countries like India having large rural

and semi-rural populations with major dependence on agriculture and high unemployment. In such

an environment, further promotion of MSMEs can lead to significant employment generation,

economic development and equitable prosperity

In India, this sector is highly diverse in terms of size of businesses, sectors, goods and services

offered and other parameters. The graphs given below show their break up on various parameters3:

3 Annual report 2012-13, Ministry of Micro Small, Medium Enterprises, GoI

94.41

Percentage Distribution of

Enterprises by Type of Organization

(in %)

Proprietory

Partnership

Pvt. Company

Cooperative

Others

Not recorded

44.66

55.34

Area wise share (in %)

Urban

Rural



As per the data of MMSME, a large majority (about 94%) of enterprises in the MSME sector in

India are proprietary concerns. About 1.18% of the enterprises are partnership firms and only

0.14% of them are private companies. Also, rural area accounts for about 55% of the total working

enterprises in MSME sector with 200.19 lakh of working enterprises whereas urban area has about

161.57 lakh working enterprises (i.e. about 45% of the working enterprises)

In term of ownership of enterprises by different social categories, about 50% of MSME enterprises

are owned by disadvantaged groups (7.83% by Scheduled Caste entrepreneurs, 5.76% by

Scheduled Tribe entrepreneurs and 41.94% by entrepreneurs of Other Backward Classes). This

shows a certain amount of inclusiveness in the MSME sector and also indicates further potential of

the sector in social development

In the organized sectors, food & beverages is the

largest MSME sector in terms of both output (USD

180 bn) and employment generation (USD 3.1 mn)

followed by textiles. The other major sectors which

have significant contributions are apparel and leather

In most sectors, MSMEs are an integral part of large

industries as they complement them as ancillary units.

As per the National Manufacturing Policy, MSMEs

are expected to contribute majorly to the target of

raising the share of manufacturing sector from 16% at

present to 25% by the end of year 2022

The number of registered MSMEs in India has shown

7.835.76

41.94

43.56

0.9

Percentage Distribution by

Social Category (in %)

SC

ST

OBC

Others

Not recorded

180

79

27

11

Food & Beverages

Textiles

Apparel

Leather

Output generated across key

sectors

USD Billion

3.12.5

1.8

0.05

Food &

Beverages

Textiles Apparel Leather

Employment generation in

organized MSME sectors across

select industries

Population (in

Million)



a growth rate of more than 10% every year till 2010-11, whereas in year 2011-12 growth rate was

19% which is approximately twice of the growth rate recorded for previous years. Following graph

depicts the growth pattern of the MSMEs (registered) in India over the last five years:

Annual report 2012-13, Ministry of Micro Small, Medium Enterprise

In spite of the healthy growth rate, the MSME sector has the potential of even higher growth which

is limited by various challenges and barriers. Stringent competition from global counterparts,

change in manufacturing strategies, technological shifts and highly volatile market scenario are

some of the challenges currently faced by this industry. Moreover, the MSMEs also face several

common issues such as lack of modern technology and support infrastructure, skills and quality,

access to market and capital, etc., which they, due to their small scale and lack of capital, many

times are unable to address leading to reduced competitiveness

(I) Rationale for Common Industrial Infrastructure/ Facilities for MSMEs

Common facilities for MSMEs are conceptualized and implemented to enable sharing of costly

infrastructure and facilities, which is otherwise very essential for the operations of MSMEs in the

increasingly competitive environment

10.76

10.78

10.93

19.06

2007-8 to

2008-9

2008-9 to

2009-10

2009-10 to

2010-1

2010-1 to

2011-2

Annual Growth Rate (in %)



(1) Common Industrial Infrastructure/ Facilities

Usually the common facilities comprise of costly, state-of-the-art hi-tech equipment, which is very

essential to meet modern processes, quality requirements and also achieving scale of operations.

Individually, MSMEs cannot afford such facilities and moreover their individual utilization would

not meet the optimum scale required for economical operations of these facilities. Such common

facilities include testing centres/ laboratories, training centres, raw material and finish products

warehouses/ cold storages, effluent and sewage treatment, complementing production processes,

packaging facilities, etc

Several industry associations in existing clusters and industrial estates promote common

infrastructure/ facility projects to provide infrastructure specifically for MSMEs. Such projects

may be either up-gradation of infrastructure in existing clusters and industrial estates, or setting up

of Greenfield clusters, i.e. industrial parks. The greenfield clusters provide opportunity for MSMEs

to move into better working environments with access to quality infrastructure and facilities. Due

to constraints of space and high costs of real estate, expansion by MSMEs is not feasible, and

therefore greenfield industrial parks provide an

opportunity to realize twin objectives of growth

and better infrastructure. It is for this reason that

several Government departments and ministries

have schemes for promotion of infrastructure for

their specific sectors

Such common infrastructure and common facilities

are normally owned by industry promoted Special

Purpose Vehicles (SPVs) which receive grants

from Government to part finance the projects

From Governments’ point of view, such projects

serve as means to encourage and promote

industrial development and create more

employment opportunities. These projects also

help MSMEs and industry in general to achieve

efficiencies and growth, including export sales,

which helps in foreign exchange earnings for the

country. The sectoral Ministries like Ministry of Textiles, Ministry of Food Processing Industries

Some of the major challenges

faced by MSMEs in India are:

• Absence of adequate and timely

banking finance

• Limited capital and knowledge,

non-availability of suitable

technology

• Low production capacity

• High cost of credit

• Ineffective marketing strategy

• Lack of skilled man power for

manufacturing, services,

marketing etc

• Lack of access to global markets

• Constraints on modernization of

expansion

• Problems of storage, designing,

packing and product display

• In adequate infrastructure

facilities, including power, water,

roads



have schemes with this objective. Similarly the Ministry of Commerce & Industry has schemes

like IIUS, Mega Leather Clusters for promotion of industry in general and specific sectors.

Similarly for Electronics Manufacturing Clusters, Ministry of Communication & Information

Technology has come out with an Electronic Manufacturing Clusters Scheme. Ministry of MSME

has Micro and Small Enterprises–Cluster Development Programme (MSE-CDP) and other

Ministries like Ministry of Heavy Industries and Public Enterprises have been exploring schemes

for promotion of Capital Goods Sector through cluster approach

From the industry’s point of view, the investment in such clusters provides them access to better

facilities and infrastructure at lesser cost, and sharing of the same through joint equity investments

in such projects. Usually, the beneficiary enterprises pool in their resources and meet the share of

industry stipulated by Government in their individual schemes. Industry is keen on investing in

such projects as it would give them competitive advantage of other similar units and also help in

meeting global compliance norms

A key motivator for industry investments in such projects is environmental compliances. With

stricter enforcement of norms and also introduction of stringent compliances necessitated by

judicial intervention, industry is left with little choice but to promote such projects. Specific

incentives are laid down for common effluent treatment plants in the Mega Leather Clusters

Scheme. Such projects also help the individual units in externalizing their obligations for

environmental compliances. Several textile parks have included effluent treatment plants in their

plans

(2) Ownership and Management Structure

The MSMEs predominantly operate in clusters as these provide them with opportunity of sharing

key resources like raw materials, specialized/skilled manpower, supporting industries, technology

and market and thus make them more efficient and competitive. There are a large number of

industrial clusters present in the country, often developed around one industry or sector and the

promotion of common industrial infrastructure/facilities for MSMEs in these clusters has been

integral to industrial development policy of the country. The nature of these clusters has

encouraged the policymakers to promote creation of common industrial infrastructure/facilities as

the most effective instruments to reach the largest number of MSMEs (beneficiaries). However,

there are different models of ownership and management (O&M) of the common infrastructure

facilities thus created in the MSME clusters. Such O&M models range from entirely government

owned and managed common infrastructures to beneficiary enterprises driven models



It has been accepted by government agencies that creation of any common infrastructure/facilities

for MSMEs needs active involvement of beneficiary enterprises, to be truly effective. The

emergence of Public-Private Partnership (PPP) is considered to be a sustainable financing and

institutional \mechanism with the potential of bridging the common industrial infrastructure gap in

the MSME sector. Typically, a Public Private Partnership entails an arrangement between a

government/statutory entity on one side and a private sector entity (typically beneficiary

enterprises although in some schemes it may be an independent third party) on the other side, to

provide public assets/services, through investments being made and/or management being

undertaken by the private sector entity, for a specified period of time, where there is a well defined

allocation of responsibilities and risk between the private sector and public entity. Many of

common infrastructure/facilities projects for MSMEs are being implemented in the spirit of Public-

Private Partnership (PPP) and provide for grant-in-aid, for part financing of infrastructure cost,

even as ownership and/or management of these infrastructure facilities are vested with groups of

MSME entrepreneurs, who are required to meet remaining cost of such infrastructure projects. In

some cases the government also recognizes that some common infrastructure/facilities projects

may not always be viable on PPP and it uses other mechanism of compensation such as provision

of Viability Gap Funding (VGF) or annuity payments, etc. Alternatively, the government

sometimes directly implements such facilities upfront and then transfer O&M of facilities and

services to a Private Sector Participant (PSP) where feasible

Typically, the beneficiary enterprises are required to from a separate legal entity, as a Special

Purpose Vehicle (SPV), with specific objective of implementation and/or management of projects

being assisted by the government agencies, either in PPP or even under private ownership.

However, the mode and amount of assistance granted by the government agencies and envisaged

financial models for these projects range widely. The various SPV structures and O&M models

have been discussed in details in the subsequent chapters of the report



CODISSIA INDUSTRIAL PARK – Enabling Local

Economic Development – A Case Study

Project Background

Coimbatore is the second largest industrialized region in Tamil Nadu after Chennai and is an

important industrial hub housing more than 50,000 small and medium enterprises

constituting about 22% of the factories in the state. The existing industrial estates promoted

by SIDCO/private co-operatives are completely taken

up with no vacant land available. More importantly,

these industrial estates are poor when it comes to

industrial infrastructure, with limited industrial

amenities. In view of this, the SME units felt the need

to have larger plots of industrial land area to cater to

the growth in demand. The Coimbatore District Small

Industries Association (CODISSIA), which is the

single largest District Association of Small Industries

in India, have decided to come together to develop

world-class integrated industrial Park at two locations near Coimbatore. The proposed Park

would be developed on a land parcel admeasuring 520 acres comprising of both the

locations. The proposed project is in line with the National Strategy of accelerating growth in

engineering exports on a medium term perspective with aggressively promoting products to

move up the value chain which has a strong domestic manufacturing base

Project Cost On the basis of cost estimates worked out for all facilities planned, the project cost is

estimated at Rs 225 Cr. The project is being developed with no grant support from

Government but purely through a mix of debt and equity from the members of CODISSIA.

Banks are showing keen interest in funding such infrastructure projects as they assist in

catalyzing industrial development and empowering the sector. Furthermore, this also

provides opportunity to banks in funding future needs of industrial units towards

construction of buildings, acquisition of machinery, etc. The Means of Finance for the

proposed project is given below:

Objectives

• To develop a green field state-

of-art Industrial Park for the

SME Industry of Coimbatore

Region.

• To provide enabling support in

the manufacturing of

engineering products and

services and accelerate the

Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facil


Means of Finance

Equity

Debt

SIDBI – Lead Bank

Canara Bank

Central Bank of India

Syndicate Bank

Total Means of Finance

Implementation Framework The prime responsibility of development of the proposed project would be that of the

SPV,M/s CODISSIA Industrial park. An appropriate contractual framework has been

proposed that would facilitate project development and operations thereafter. The contractual

framework is described in the schematic diagram below

IL&FS Clusters has been retained by the SPV as the Project Management Consultant (PMC),

for the purposes of carrying out Project Development, Design and Detailed Engineering of

the proposed Project and for overseeing construction and implementation supervision. The

SPV has entered into financing documentation for securing the Loans and would repay the

same as per the schedule laid down in the Base Case Business Plan. SIDBI is the Lead

Banker for the Project and it has undertaken detailed appraisal of the project, loan

documentation/ security creation and assistance in disbursement of the term loan.



Rs Crore Rs Crore

Lead Bank 55.00

40.00

Central Bank of India 30.00

30.00

Total Means of Finance

responsibility of development of the proposed project would be that of the



rk is described in the schematic diagram below:



or overseeing construction and implementation supervision. The



ct and it has undertaken detailed appraisal of the project, loan



Rs Crore

70.00

155.00

225.00

responsibility of development of the proposed project would be that of the





or overseeing construction and implementation supervision. The



ct and it has undertaken detailed appraisal of the project, loan




Envisaged Impact of the Project

It is estimated that about 550-600 SME

units will be set up in the park with an

average per acre investment of about

Rs 3 Crore and an estimated total

turnover of Rs. 1750 crore. The Park is

envisaged to generate direct and

indirect employment of about 17,500

and 2500 people respectively. The

project will provide long and short term

local job opportunities and increasing

connectivity of the region through

construction and upgradation of roads

for movement of construction material

and subsequently raw material and

finished products. The project will go

long way in increasing the economic

growth of the region

Role of SPV, CODISSIA Industrial Park

• Development of the Project

• Operate, manage and maintain the Park along with the infrastructure facilities

• Facilitate intending industrialists in establishing their units

Role of SIDBI

• SIDBI is the Lead Banker

• Undertaken detailed appraisal of the project, loan documentation/ security creation and assistance in disbursement of the term loan

• Monitoring the project implementation shall be jointly undertaken by all the bankers in consortium

Role of IL&FS Clusters

• IL&FS Clusters is the ‘Project Development and Executing Advisor’

• Assisting SPV in Project Development (site analysis, project related studies, preparation of master plan and estimation of block costs)

• Project engineering & supervision

Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities

for MSMEs Under PPP and Private Ownerships

ChapterChapterChapterChapter----4444: Major Focus Schemes Analyzed in : Major Focus Schemes Analyzed in : Major Focus Schemes Analyzed in : Major Focus Schemes Analyzed in

the Studythe Studythe Studythe Study

(I) Scheme for Integrated Textile Parks (SITP), Ministry of Textiles

The ‘Scheme for Integrated Textile Parks’ (SITP) was approved in the 10th Five Year Plan

(July 2005) in order to provide the textile industry with State of the art, world-class

infrastructure facilities for setting up their textile units. The important feature of the scheme

is to target locations where there are high future growth prospects and necessitate critical

interventions to extend state-of-the-art facilities so as to develop common infrastructure and

buildings for production/support activities (including textiles engineering, accessories.

packaging), depending on the needs of the ITP. The scheme would also facilitate textile units

to meet international environmental and social standards

The Scheme seeks green field investments in the textiles sector which will be operational

through mode of Public Private Partnership for setting up textile units. All the sub-sectors of

textile industry are eligible under the scheme such as cotton ginning, spinning, weaving,

processing, garmenting and the related ancillaries. Each Integrated Textile Park (ITP) would

normally entail about 50 units. The number of entrepreneurs and investments to be made in

each ITP is project specific. The entire range of common infrastructure within the park are

eligible under the scheme which includes roads, water supply, sewage/effluent treatment,

power including CPP, training facilities, workers hostels, testing labs and SPV owned factory

buildings, etc

(1) Implementation

Each ITP is considered as a separate Special Purpose Vehicle (SPV) which involves various

stakeholders’ i.e. local industrial entities, banks and/or financial institutions, State

Governments and Central Government into a single fold. SPV shall invariably be a Corporate

Body registered under the Companies Act. ITPs may also be set up as SEZs

The state governments have a special role to play for setting up ITPs. All kinds of necessary

approvals and required assistance for power, water and other utilities etc., wherever

necessary, are to be obtained from state governments. Further, they also assist in



identification and procurement of land at locations suitable for development of a textile hub

in the state. Various state government agencies may also participate in the projects by

subscribing to the equity of SPV or by providing grants-in-aid for the project

(2) Funding Pattern

The project cost covers common infrastructure and buildings for production/support activities

as per the specifications of the ITP. However, aggregate investment in land, factory buildings

and Plant & Machinery by the entrepreneurs in a Park shall be at least twice the cost of

common infrastructure proposed for the Park. Total project cost is funded through mix of

equity and grant-in-aid from various agencies i.e. Ministry of textiles State Government,

State Industrial Development Corporation, Industry, Project Management Consultant and

Loan – from Banks/ Financial Institutions etc. extend financial support to the ITP.

Government of India extends financial support to the project through the Scheme up to 40%

of the project cost subject to a ceiling of Rs. 40 crore. Financial assistance from Govt. of

India is generally a grant-in-aid to the project unless specified by Project Approval

Committee (PAC) to be equity. The combined equity stake of government agencies i.e.

Central Government/State Government/ State Industrial Development Corporation would not

exceed 49% of the project cost. GOI support will be provided at 90% of the project cost

subject to a ceiling of Rs. 40 crore for first two projects in the North East States and Jammu

& Kashmir

(II) Micro and Small Enterprises–Cluster Development Programme

(MSE-CDP), Ministry of Micro, Small & Medium Enterprises

(MSME)

To strengthen and enhance the competitiveness of micro and small enterprises in the country,

the Ministry of Micro, Small & Medium Enterprises (MSME) has adopted a cluster

development approach to realize higher productivity, competitiveness and capacity building

of a group of enterprises which are located in geographical proximity and are complementary

to each other

In October 2007, the erstwhile cluster development scheme ‘Small Industries Cluster

Development Programme (SICDP)’ was renamed as ‘Micro and Small Enterprises – Cluster

Development Programme (MSE-CDP)’. It was also decided that the ‘Integrated

Infrastructural Development (IID)’ Scheme shall be subsumed in MSE-CDP for providing



developed sites for new enterprises and upgradation of existing industrial infrastructure. A

comprehensive MSE-CDP is being administered by the office of Development Commissioner

(MSME), the Ministry of MSME

(1) Objectives

As per the scheme guidelines, the objectives of the scheme are given below:

• To support the sustainability and growth of MSEs by addressing common issues such

as improvement of technology, skills and quality, market access, access to capital, etc.

• To build capacity of MSEs for common supportive action through formation of self

help groups, consortia, upgradation of associations, etc.

• To create/upgrade infrastructural facilities in the new/existing industrial areas/

clusters of MSEs.

• To set up common facility centres (for testing, training centre, raw material depot,

effluent treatment, complementing production processes etc).

(2) Activities

The admissible activities under this scheme are as follows:

• Diagnostic Study Reports: These reports are prepared to identify a cluster and to

prepare an action plan for the same.

• Soft Interventions: To provide technical assistance, capacity building, exposure

visits, market development, trust building, etc for the cluster units.

• Detailed Project Report: To prepare a technically feasible and financially viable

project report for setting up of a common facility center for cluster of MSE units

and/or infrastructure development project for new industrial estate/ area or for

upgradation of infrastructure in existing industrial estate/ area/ cluster.

• Hard Intervention/Common Facility Centers (CFCs): Creation of tangible “assets”

like Testing Facility, Design Centre, Production Centre, Effluent Treatment Plant,

Training Centre, R&D Centre, Raw Material, Bank/Sales Depot, Product Display

Centre, Information Centre, any other need based facility.

• Infrastructure Development: Development of land, provision of water supply,

drainage, power distribution, non- conventional sources of energy for common

captive use, construction of roads, common facilities such as first aid centre, canteen,



other need based infrastructural facilities in new industrial (multi- product)

areas/estates or existing industrial areas/estates/clusters

(3) Implementation

It is necessary to form an SPV prior to setting up of and running the proposed CFC. An SPV

should be a clear legal entity (Cooperative Society, Registered Society, Trust or a Company)

with evidence of prior experience of positive collaboration among its members. The SPV

should have a character of inclusiveness wherein provision for enrolling new members to

enable prospective entrepreneurs in the cluster to utilise the facility should be provided. There

should be a minimum of 20 MSE cluster units serving as members of the Special Purpose

Vehicle (SPV). There is no ceiling on the maximum number of members. In special cases,

where considerations of investments, technology or small size of the cluster warrant lesser

number of units, a minimum of 10 MSE units may be considered for the SPV

(4) Implementing Agencies

Following are the agencies made responsible for the above mentioned activities:

Activity Implementation Agency

Diagnostic study • Officers of Ministry of MSME.

• Offices of State Governments.

• National & international

institutions engaged in

development of MSE sector.

• Any other institution/agency

approved by Ministry of MSE.

Soft interventions

Setting up of CFC

Infrastructure development projects State/UT Governments through an

appropriate state government agency with

a good track record in implementing such

projects.

(5) Funding Pattern

Under this scheme, broadly five activities have been proposed for funding pattern:



• Diagnostic Study Reports: Total grant of maximum Rs. 2.5 lakhs for each cluster

will have to be aided by Ministry. The grant amount is Rs. 1.00 lakhs for field

organizations of Ministry of MSME

• Soft Interventions: Maximum limit of Rs. 25.00 lakhs per cluster has been marked.

GoI grant for the soft interventions will be 75% of the sanctioned amount of the

project cost. For NE & Hill States, Clusters with more than 50% (a) micro/village (b)

women owned (c) SC/ST units, the GoI grant will be 90%. The cost of project will be

moderated as per size/ turnover of the cluster

• Detailed Project Report: A maximum grant of Rs. 5.00 lakhs will be provided for

this task

• Hard interventions: Financial assistance from Govt. of India as grant-in-aid will be

restricted to 70% of the project cost subject to maximum of Rs. 15.00 crore. GoI

grant will be 90% for CFCs in NE & Hill States, Clusters with more than 50% (a)

micro/ village (b) women owned (c) SC/ST units

• Infrastructure Development: Govt. provides grant up to 60% of the project cost

maximum up to Rs 10.00 crore. GoI grant will be 80% for projects in NE & Hill

States, industrial areas/ estates with more than 50% (a) micro (b) women owned (c)

SC/ST units

(III) Modified Industrial Infrastructure Upgradation Scheme (MIIUS),

Ministry of Commerce and Industry

MIIUS, a flagship scheme under Department of Industrial Policy & Promotion (DIPP),

Ministry of Commerce & Industry, is a revised and modified version of Industrial

Infrastructure Upgradation Scheme (IIUS) launched in 10th Five Year Plan (in FY 2003-04).

With a special focus of upgrading and building industrial infrastructure to enhance

competitiveness and to overcome operational lapses, the scheme aims to promote public

private partnership (PPP) in selected clusters. This scheme promotes demand driven approach

and intends to cover the components such as Common Facility Centres (CFCs), Research &

Development, Environment Protection Infrastructure, Training Set up, Quality Certification

& Benchmarking etc. which otherwise are not covered under other available schemes. The

Scheme prioritizes upgaradation of infrastructure in existing clusters over Greenfield



investments. Further, the Scheme also aims to upgrade infrastructure in Industrial

Estates/Parks/Areas and Greenfield projects in backward areas including NER

The Scheme was implemented through SPV model in PPP mode in 10th & 11th FYP.

However, various practical shortfalls had to be faced while implementing the Scheme

through this mode. As per the modified scheme guidelines, there were enormous delay in

implementation, cost escalation in case of majority of the projects, lack of project

accountability and shortfalls in achievement of outcome. It was challenging for stakeholder

industries to unite to form a SPV for creating a common infrastructure due to internal conflict

among industries. The SPVs faced difficulties in raising equity from its members as

envisaged in the project; and some SPVs defaulted in raising funds and in some cases, state

government and local bodies contributed funds to the extent of failed contributions from the

Industries. Further, optional involvement of the State Governments in the scheme led to weak

ownership of the project with reduced financial, monitoring and mentoring support to the

project

Considering the shortfalls of previous modes and taking the lessons from the past, the

modified Scheme now will be implemented through State Implementing Agency (SIA) in

12th FYP. SIA will formulate the project interventions as well as implement and monitor the

progress of the project. The SIA for each IIUS project could be the State Industrial

Development Corporation (SIDC) or any equivalent state entity as identified and

recommended by the respective State Government

It is also proposed that the proposals can be taken up under either of the following two

options:

• For funding of new or existing Industrial Estates/Parks/Areas, SIA would choose the

site in consultation with the industry to assure that funds are not sought for Industrial

Estates/Parks/Areas in place where industry does not find it viable.

• For funding through SPV-led Clusters, the proposal is routed through the SIA-led

implementation route

The role of states in the scheme has been redefined for nominating the State Implementation

Agency (SIA) such as State Industrial Development Corporations for execution of the project

and sharing the project cost. It is expected that with this change, bottlenecks which delayed

the projects in earlier versions of scheme would be overcome. In this way, state governments

have to play a central role in this Scheme considering the industry is a State subject



(1) Funding Pattern

The central government will contribute up to 50% each of the project cost subject to a ceiling

of Rs. 50 Crore. The remaining contribution will be from the SIA, beneficiary industries and

loan from financial institutions. The minimum contribution of the SIA will be 25% of the

project cost. In case of North Eastern States, the central grant and the minimum contribution

of the SIA will be 80% and 10% respectively. Central grant for physical infrastructure will be

up to 25% of the central grant subject to a ceiling to Rs.12.5 crore. ‘CETP’ component of the

project would be considered subject to ceiling of assistance upto Rs. 15 crore/CETP

(maximum Rs. 1.50 crore/MLD) and for ZLD treatment (Zero Discharge) maximum

assistance up to Rs. 20 crore/CETP (Rs. 4.50 crore/MLD)

Central government funding will be confined only to creation of durable assets and activities

relating to productivity enhancement and no recurring expenditure will be funded by Central

Government under the scheme

The central assistance will be a onetime grant-in-aid (not equity) and the contributions of

other stakeholders must be in the form of cash and not in kind like the cost of land/existing

building. The SIAs will meet all expenses beyond the prescribed limit from their own

resources. In case of downward revision of project cost, the central government grant would

be reduced proportionately

Interest earned on central grant by the SIA to be treated as a part of the central grant. Land

and Land development cost, working capital and contingencies shall be excluded from the

project cost. Higher expenditure in the project cost due to time and cost-overruns have to be

borne by the SIA or other stakeholders

(IV) Mega Food Parks Scheme (MFPS), Ministry of Food Processing

Industries (MoFPI)

Mega Food Parks Scheme is being implemented by Ministry of Food Processing Industries

(MoFPI). This scheme was launched by Ministry of Food Processing Industries as Scheme of

Food Parks during 10th FYP and was reformulated as Mega Food Parks Scheme during 11th

FYP

The primary objective of the MFPS is to provide modern infrastructure facilities for the food

processing along the value chain from the farm to the market. It will include creation of



processing infrastructure near the farm, transportation, logistics and centralized processing

centers. The main feature of the Scheme is a cluster based approach. The scheme will be

demand-driven, and will facilitate food processing units to meet environmental and safety

standards

The expected outcome is increased realization for farmers, creation of high quality processing

infrastructure, reduction in wastage, capacity building of producers and processors and

creation of an efficient supply chain along with significant direct and indirect employment

generation

(1) Salient Features of Mega Food Parks

• The Scheme aims to facilitate the establishment of a strong food processing industry

backed by an efficient supply chain, which would include collection centers, primary

processing centers and cold chain infrastructure. The food processing units, under the

Scheme, would be located at a Central Processing Centre (CPC) with need based

common infrastructure required for processing, packaging, environmental protection

systems, quality control labs, trade facilitation centers, etc

• The extent of land required for establishing the CPC is estimated to be between 50-

100 acres, though the actual requirement of land would depend upon the business plan

of investor(s), which may vary from region to region. CPC would be supported by

Primary Processing Centers (PPC) and Collection Centers (CCs) in identified

locations based on a techno-feasibility study, adequate to meet the raw material

requirements of the CPC. The land required for setting up of PPCs and CCs at various

locations would be in addition to land required for setting up the CPC

• It is expected that on an average, each project may have around 30-35 food processing

units with a collective investment of around Rs 250 crores that would eventually lead

to an annual turnover of about Rs 450-500 crores and creation of direct and indirect

employment of about 30,000 persons. However, the actual configuration of the project

may vary depending upon the business plan for each Mega Food Park. The aggregate

investment in CPC, PPCs and CCs should be proportionate and commensurate to the

size of the total project keeping in view the economies of scale

• The spirit of the guidelines of the Mega Food Parks Scheme is to facilitate setting up

of only food processing industries. Accordingly, only food processing industries that

make food products fit for human/animal consumption may be permitted to be set up



in the Mega Food Parks. Packaging facilities of food products as ancillary to the food

processing industries may also be allotted land in the Mega Food Parks

(2) Implementation

The project under this scheme will be implemented through a Special Purpose Vehicle (SPV)

registered under Companies Act. However, State Government/ State Government

entities/Cooperatives applying for the project under the scheme will not be required to form a

separate SPV

The Anchor Investor in the SPV holding majority stake, with or without other promoters of

the SPV, will be required to set up at least one food processing unit in the park with an

investment of not less than Rs. 10 crore. The Anchor Investor will have at least 51% stake in

such processing unit(s). However, State Government/ State Govt. entities/ Cooperatives will

not be required to set up processing unit(s) in the park

As per the guidelines, lead promoter is the one who has maximum equity share in the SPV.

The lead promoter has to coordinate with the key stake holders including Ministry of Food

Processing Industries. The combined net worth of the promoters should be not less than Rs.

50.00 crore and each member in SPV must have a net worth at least 1.5 times of his/her

proposed equity contribution in order to ensure requisite contribution for the project from

each shareholder. The SPV has to bring in at least 20% of total project cost as equity in

general areas and at least 10% of total project cost in difficult & hilly areas & ITDP notified

areas. Also, only up to 26% equity share can be taken up by Central Government. However,

there are no such restrictions on State Government entities/Cooperatives. SPV is not

permitted to sell or lease the common facilities under Mega Food Park and can only be

offered on rental basis

(3) Program Management Agency (PMA)

The Ministry appoints a Program Management Agency (PMA) to assist it in implementation

of the Scheme. The PMA is required to be a reputed institution with extensive experience in

project development, management, financing and implementation of infrastructure projects

(4) Project Management Consultant (PMC)

In addition to the PMA, for ensuring smooth implementation of projects at ground level,

Ministry has drawn up a panel of Project Management Consultants (PMC) with experience in



preparation of DPRs for large projects and in project implementation. Any of these Ministry’s

empanelled agencies may be engaged by the SPVs for preparation of DPRs and for assistance

in implementation and the cost of which would be considered as one of the eligible

components of the project. However, such cost should not exceed 2% (inclusive of taxes) of

the eligible grant amount of the project

(5) Funding Pattern

The Scheme shall provide a capital grant at the rate of 50 percent of the eligible project cost

in general areas and at the rate of 75 percent of eligible project cost in difficult and hilly areas

i.e. North East Region including Sikkim, J&K, Himachal Pradesh, Uttrakhand and ITDP

notified areas of the States subject to a maximum of Rs.50 crores per project. The eligible

project cost is defined as total project cost but excluding cost of land, pre-operative expenses

and margin money for working capital. However, Interest During Construction (IDC) as part

of preoperative expenses and fee to Project Management Consultant (PMC) up to 2% of the

approved grant would be considered under eligible project cost

(V) Scheme for Cold Chain, Value Addition and Preservation

Infrastructure, Ministry of Food Processing Industry (MoFPI)

The Ministry of Food Processing Industries (MoFPI) launched the Scheme for Cold Chain,

Value Addition and Preservation Infrastructure during the 11th Plan, which emerged out of

the realization that any effort to promote food processing sector has to necessarily address the

challenges of existing logistics constraints, specially for perishables, in the country. The

Scheme, therefore, aims at enabling food processing units to create integrated and appropriate

cold chain facilities along the value chain with an objective to streamline the supply chain

leading to significant reduction in wastages of perishables

(1) Objectives

The objective of the Scheme is to provide integrated and complete cold chain, value addition

and preservation infrastructure facilities without any break, for perishables from the farm gate

to the consumer and to link producers to food processors and market through well equipped

and efficient supply chain. To achieve this objective pre-cooling facilities at production sites,

reefer vans and mobile cooling units are also assisted under the Scheme. The Scheme also

aims to establish value addition with infrastructural facilities like sorting, grading, packaging



and processing for a variety of products such as fruit and vegetable, marine, dairy, poultry,

etc

(2) Components of the Scheme

The eligible components under the Scheme are as follows:

a. Minimal Processing Centre at the farm level. This centre may have facilities

for weighing, sorting, grading, waxing, packing, pre-cooling, Controlled

Atmosphere (CA)/ Modified Atmosphere (MA) cold storage, normal storage,

Ripening Chamber and Individual Quick Freezing (IQF) etc

b. Mobile pre-cooling vans and reefer trucks

c. Distribution hubs with multi product and multi CA /MA chambers cold

storage /Variable Humidity Chambers, Packing facility, grading and sorting

facility, CIP Fog treatment, Ripening Chambers, IQF and Blast Freezing etc

d. Irradiation facility

To avail financial assistance, any two of the components, from (a), (b) or (c) above are

required to be set-up by the units. Considering the functional nature of the facility, Irradiation

facility is considered on standalone basis for the purpose of eligibility

(3) Funding Pattern

Financial assistance is provided @ 50% of the total cost of plant & machinery and technical

civil works in general areas and 75% for NE region and difficult areas (North Eastern states,

Sikkim, J&K, Himachal Pradesh and Uttrakhand) subject to a maximum grant-in-aid of Rs 10

Crore


Any business entity including individuals (proprietorship concerns), groups of entrepreneurs,

cooperative societies, Self Help Groups (SHGs), Farmer Producer Organizations (FPOs),

NGOs, Central/State PSUs, Partnership Firm, Private/ Public Ltd. company, LLP etc. can

apply under the scheme

(5) Selection Process

Applications under the scheme are invited through EOI by the Ministry. The proposals have

to meet the following basic eligibility criteria:



a) The net worth of the applicant should be at least 1.5 times of the grant applied for.

b) Availing term loan from the Bank/Financial Institution for an amount not less than

10% of the project cost

c) Appraisal of the project by Bank/Financial Institution

d) Minimum two components [from (a), (b) and (c) of Components of Scheme as

mentioned above]

e) Irradiation facility can be treated as a standalone project for the purpose of availing

grant

f) No second proposal from the same applicant / company

g) Date of commercial production should not be prior to the date of submission of

application

The proposals found prima facie eligible based on the above mentioned criteria are evaluated

as per the approved assessment criteria

An Ideal Cold Chain project at Rai Food Park in Sonepat,

Haryana – A Case Study

The cold chain project, promoted by Suri Agro Fresh Pvt. Ltd at Rai Food Park in Sonepat,

Haryana, is envisaged to be an integrated facility consisting of multi-product/ multi-chamber

cold storage (controlled atmospheric/ modified atmospheric chambers, ripening chambers)

packing line for fruits and vegetables, and dry storage for other agricultural crops.

The major cold chain components being set up by them are as follows:

Sl No Major Cold Chain Components Capacity

1 Multi-Product/Multi -chamber CA/MA cold Storage 11000 MT

2 Reefer Trucks 3 Trucks of 8MT

capacity

3 Packing lines for fruits& Vegetables 1 line

The project is located inside the Rai Food Park, which is strategically located at a distance of

about 35 KM from Azadpur Mandi, New Delhi. It is on NH-1, connecting New Delhi to

Ambala and Chandigarh via Sonepat, Panipat. Road, drainage, power, water supply, etc are

well developed inside the park. The project facilities are equipped to handle both domestic

and imported fruits and vegetables. The promoters are one of the oldest fruits traders of

Aazadpur Mandi in Delhi and deal in domestic marketing as well as exports. They are



authorized distributors of companies such as Zespri of New Zealand, Dole, Unifruitti, FHEL

and Adani Agri Fresh. The promoters also sell their fresh and processed products under the

brand ‘Enjoy’. The promoters have three offices located in Delhi, Mumbai and Ahmedabad

for distribution of fresh and processed products. The promoters are planning to link the

project with three collection centers located in Shopian- Phulwama road in Jammu and

Kashmir, Kotkhai (Kokunala) and Jubbal (Saraswati Nagar) in Himachal Pradesh. These

centers will mainly procure apple and pear from farmers of this area. The collection center is

J&K is already operational and the promoters have tied up with one of the largest apple

traders of that region. Setting up of collection centers are under progress at two other

locations in Himachal Pradesh; the promoters have acquired land and begun the construction

work. The setting up of an integrated cold chain facility in Haryana is likely to add value to

the existing supply chain of fruits and other perishables. It shall benefit both the farmers and

the traders by reducing product wastages by providing cold storage facilities. Setting up of

CA storage at the project site will increase the shelf life of the products, their marketability

and hedge farmers risk against price fluctuation. It is envisaged that farmers will have greater

access to bigger markets and hence obtain better price for their produce. This, in turn, will

significantly increase farmers income and they will have better incentives to produce good

quality products. Moreover, the project will also generate employment for both skilled and

un-skilled manpower, directly and indirectly. Overall, the project will have an impact on

more than 2000 farmers. The project has made significant progress with near completion of

technical civil work and equipments for major project components are in installation stage.

Photographs of the Cold Chain Project by Suri Agro Fresh Pvt. Ltd



(VI) Comprehensive Handicrafts Cluster Development Scheme (CHCDS),

Department Commissioner (DC) for Handicrafts, Ministry of

Textiles

The Comprehensive Handicrafts Cluster Development Scheme (CHCDS) was launched in

2009 by the DC Handicrafts, Ministry of Textiles

The Scheme targets development of Handicraft Mega Clusters across the country through an

umbrella cluster development program that drives the development program in an integrated

and holistic manner. It is proposed to scale up infrastructure and production facility of

identified mega clusters with artisans more than 20,000 in a cluster with geographical area

such as a district, for which comprehensive development plans would be drawn up and

implemented by way of dovetailing various schemes on a PPP basis

Till date five Mega clusters have been identified under the CHCDS:

• Moradabad Brass Mega cluster

• Narsapur Lace Mega cluster

• Bhadoi-Mirzapur Carpet Mega cluster

• Srinagar Carpert Mega cluster

• Jodhpur Handicraft Mega cluster

(1) Objectives

The broad objectives of the scheme are as follows:

• To enhance the competitiveness of selected cluster in terms of increased market share

and ensuring increased productivity by higher unit value realization of the products.

• Ensure effective integration of scattered artisans by building their grassroots

enterprises and linking them to SMEs to build critical mass for customized

interventions and ensure economies of scale in operations. This will build a supply

system that is geared to responding to large-scale orders, adhering to quality and

product standardization, which are pre-requisites of global markets

1. To generate additional livelihood opportunities to the people through

specific interventions in segmental sub sector industry and increase the

incomes to the artisans/craftsmen already engaged in this sector



2. To provide requisite support/ linkages in terms of adequate infrastructure,

technology, product diversification, design development, raw material

banks, marketing & promotion, social security and other components that

are vital for sustainability of artisans/craftsmen engaged in the Handicrafts

sector

3. The core elements of the strategy for the proposed program are given

below:

a. Convergence of the resources available under various ongoing

schemes of the Central Government

b. Public Private Partnership (PPP) model in the form of

collaboration between the Central/State Governments, beneficiary

artisans & their groups, financially creditworthy & commercially

linked marketing enterprises and the financial institutions

c. Proactive and strong technical and program management assistance

for capacity building, designing of the interventions and their

implementation, through a competent professional agency

(2) Project Components

The project components broadly covered in the scheme are: Skill Development, Design,

Innovation and Product Development, Market Promotion, Trade Facilitation Centre,

Technology Upgradation for Individual Exporters, Community Production & Facilitation

Centre, Toolkits & Safety Kits & Raw Material Bank

(3) Eligible Agencies

The implementing agency for the various interventions is selected preferably through a

competitive process. The following agencies on their own or through their SPVs are eligible

for implementing this scheme:

• Established NGOs, Artisan federations and SHG groups

• Industry Associations in the cluster engaged in the development of handicrafts

sector

• Export promotion councils including EPCH, Registered exporters’

associations/Chambers of Commerce, etc



• National Level institutions (both Private and Government owned) such as

NIFT, NID, IICD, NCDPD, COHANDS, etc engaged in the promotion of

handicrafts sector

• Government supported / sponsored Institutions including State Government

Missions, Corporations etc

• A Special Purpose Vehicle (SPV) Company which shall be a legal entity,

registered under Companies Act 1956 with the participation of related

Stakeholders, particularly the leading manufacturers, suppliers, buyers, and

artisan federations/SHGs/financial institutions

(4) Implementing Agencies (IA) / Special Purpose Vehicle (SPV)

• The interventions under the project are implemented by IAs. It is the recipient

of grant support from the Ministry of Textiles and other agencies

• Such IA is responsible for ownership, execution and management of the

interventions/facilities created under the project. In the case of the

implementing agency being a SPV Company registered under the Companies

Act 1956, the majority of the equity of such SPV should be with the

artisans/craftsmen/ entrepreneur of the cluster and/or their

associations/cooperatives/ federations/ SHGs. The remaining stake may be

held by strategic investors such as buyers, large scale production units, banks,

financial institutions, State Government agencies, etc

• It is mandatory to induct two Government nominees in the Board of

Directors/Governors of IA/SPV for all projects including soft and hard

interventions

• For any SPV, each member is not allowed to hold more than 5% equity

(including his relatives)

• One or more SPV/IA can implement the same intervention. Also one SPV / IA

can be entrusted to implement more than one intervention

• SPV is responsible for maintaining the utilities and infrastructure created by

collecting service and user charges to recover cost and future expansion



(5) Funding Pattern

• The funding is in the ratio of 75:25, wherein Government grant per cluster

may constitute 75% (with a ceiling of Rs. 70 crores) and the balance 25% is

raised by Implementing Agencies (IAs)/Special Purpose Vehicles (SPV)

comprising of various stakeholders. The contribution of 25% by SPV also

includes the cost of land. While this sharing is largely valid at the overall

project level, the respective shares of the stakeholders may vary from

component to component depending upon the nature of interventions

• All existing schemes of the Development Commissioner (Handicrafts) as well

as other complementary schemes available in other ministries can be

integrated into the proposed comprehensive cluster development program with

a strong and proactive capacity building and technical assistance.

(VII) Scheme for Development of AYUSH Clusters, Department of

AYUSH, Ministry of Health & Family Welfare

With increase in awareness among Indians and at global forum on traditional medicine, its

market share has been increasing steadily. Due to constrains viz. fragmentation of industries,

lack of standardization of raw material and finished products, inadequate R&D, slow pace of

modernization of production processes and technology, absence of focused marketing and

branding, inadequate emphasis on human resource development, the Ayurveda, Yoga and

Naturopathy, Unani, Siddha and Homeopathy (AYUSH) industry has not been able to exploit

the emerging market opportunities. The ‘Scheme for Development of AYUSH Clusters’, is a

Central Sector Scheme and is implemented by Department of AYUSH, Ministry of Health &

Family Welfare. In the present context of challenges, the ‘Scheme for Development of

AYUSH Clusters’ was launched by Department of AYUSH, Ministry of Health & Family

Welfare in the 11th FYP.

(1) Objectives

• To bridge the critical gaps especially regarding standardization, quality assurance and

control, productivity, marketing, infrastructure and capacity building through a cluster

based approach



• To encourage the level of organization in the sector thereby creating social capital for

sustainability of collective initiatives

The scheme is implemented on Public Private Partnership (PPP) and Department of AYUSH

supports by the way of grant to the SPV (formed by group of entrepreneurs from AYUSH

sector). This implies that willing industry representatives desirous of framing cluster can

apply and obtain grant under the Scheme. Also, the project entails availability of

infrastructure and willingness on the part of SPV

(2) Implementation

The scheme is implanted on a PPP basis through SPV formation, owned and managed by the

user industry. An SPV is ordinarily a company registered under Companies Act, 1956. Any

other structure of SPV would require prior approval of Scheme Monitoring Committee

(SMC)

An SPV should represent a cluster as a whole and should have a minimum of 15

manufacturing enterprises of AYUSH products as its shareholders; of them at least 75%

should have GMP certificate & license valid for 3 years for manufacturing AYUSH products

under Drugs & Cosmetics Act, 1940 proceeding to incorporation of SPV. AYUSH

enterprises should hold at least 51 % equity of the SPV and remaining may be held by any

Government agency, Financial Institution/Bank, strategic partners like buyers, ASU colleges

etc as the case may be. There should be one nominee of the Department of AYUSH and one

nominee of PMC on the Board of Directors of the SPV till completion of the project. The

state government plays an important role to provide land for the project, necessary clearances

and other assistance to make project effective and viable

(3) Pattern of Assistance

The assistance under scheme would be available for a project, prepared for development of a

cluster in general; covering the following two sets of interventions:

• Core Interventions such as those related to setting up of common facilities for testing,

certification, standardization, quality control and other capacity building measures.

• Add-on Interventions such as those related to marketing/ branding, provision of

general infrastructure to support production units etc.



The assistance would be available to the units related to Ayurveda, Sidha, Unani,

Homeopathy, Yoga & Naturopathy. Each of the cluster development projects proposed to be

implemented by a Special Purpose Vehicle (SPV) representing at least 15 AYUSH

manufacturing enterprises in a cluster is eligible for grant funding under the scheme up to

60% of cost of the core interventions, 25 % of the cost of add on interventions, within overall

ambit of 60% of the project cost subject to maximum of Rs.10.00 crore per cluster. The

assistance is further subject to the following:

• Assistance for engagement of CDEs and other management support of SPV should

not exceed 5% of the overall project cost

• Assistance for engaging engineers/ architects/ construction management/ other experts

for execution of civil works should not exceed 5% of the overall project cost

(4) Project Management Consultant (PMC)

Recognizing the fact that the projects of the proposed nature requires very extensive project

development efforts, Department of AYUSH engages the services of an agency that has

experience in developing, financing and executing the cluster development projects and as

Advisor in implementation of similar PPP based Schemes, from the stage of

conceptualization to commissioning. PMC acts as a link between the Department and the

industry and would help in speedy implementation of the projects in a transparent manner

(VIII) Mega Leather Cluster, a Sub-Scheme of Indian Leather Development

Programme, (DIPP), Ministry of Commerce and Industry

(1) Objective

The major objective of developing Mega Leather Clusters is to create world-class

infrastructure and to integrate the production chain in a manner that caters to the business

needs of the leather industry so as to cater to the domestic market and exports. In brief, these

mega clusters will assist the entrepreneurs to set up world-class units with modern

infrastructure, latest technology, and adequate training and Human Resource Development

(HRD) inputs. The development of Mega Leather Clusters would help in creating additional

employment opportunities, particularly for the weaker sections of society



The Mega Leather Clusters may host production units of all segments namely footwear,

footwear components, leather goods (including gloves), leather garments & saddlery &

harness items

It is proposed to develop Mega Leather Clusters in the States having large concentration of

leather units as also in States having potential for growth of the leather sector in view of the

labour advantage and raw material availability. The scheme is demand driven and the exact

locations are identified on receipt of DPRs from the Industry with diagnostic study along with

availability of backward and forward linkages on those locations. Such clusters should have

world-class infrastructure and good connectivity with the Ports. The maximum time frame for

complete establishment of each Mega Leather Cluster is 5 years. The selection of the Mega

Leather Cluster is done based on outcomes proposed and the proposal with the best outcomes

is approved

(2) Implementation

Each Mega Leather Cluster project is implemented by a Special Purpose Vehicle (SPV). The

assistance is provided to a SPV which should be a legal entity duly registered for this

purpose. The SPV is promoted by private companies registered under the Companies Act,

1956 engaged in leather industry value chain, industry organizations registered under

Societies Act, financial institutions, R&D institutions, State or Local governments or their

agencies and units within the Leather Industry. The structure of SPV is approved by the

Empowered Committee at the time of in-principle approval for the project

(3) Funding Pattern

The total project cost for the purpose of the Mega Leather Cluster sub-scheme comprises of

the cost of Land development, Infrastructure, Capacity Building and engagement of

Consultant by SPV. GoI assistance is up to 50% of the project cost, subject to the limitations

as follows, depending on the total land area of the MLC:

• MLC of 25-60 acres land (to be set up without tanneries) and 40-60 acres land (to be

set up with tanneries)- GoI assistance limited to Rs 50 crore

• MLC of 61-100 acres land- GoI assistance limited to Rs 70 crore

• MLC of 101-150 acres land- GoI assistance limited to Rs.105 crore

• MLC of more than 151 acres land- GoI assistance limited to Rs 125 crore



The SPV/industry has to bring in the land for the project at its own cost. Component wise

amount of assistance is decided from project to project by the Empowered Committee based

on due appraisal of the project proposal received from concerned SPV

(IX) Plastic Parks, Department of Chemicals and Petrochemicals

The Indian Plastics industry is large but highly fragmented with dominance of tiny, small and

medium units and thus lacks the capacity to tap this opportunity. Department of Chemicals &

Petrochemicals has formulated this scheme with a view to synergize and consolidate the

capacities through cluster development. The scheme supports setting up of a need based

“Plastic Parks’ an ecosystem with requisite state of the art infrastructure and enabling

common facilities to assist the sector move up the value chain and contribute to the economy

more effectively

(1) Objectives


• To increase the competitiveness, polymer absorption capacity and value addition in

the domestic downstream plastic processing industry through adaptation of modern

research and development led measures

• To increase investments in the sector through additions in capacity and production,

creating quality infrastructure and other facilitation to ensure value addition and

increase in exports

• To achieve environmentally sustainable growth through innovative methods of waste-

management, recycling, etc

• To adopt a cluster development approach to achieve the above objectives owing to its

benefits arising due to optimization of resources and economies of scale

The grant is a onetime grant –in – aid to the special purpose vehicle (SPV) formed by the

State Government or any of its agencies such as State Industrial Development Corporation

(SIDC) in association with user enterprises representing the plastic sector / sub sector

(2) Activities




(a) Infrastructure to support production units like roads, water supply, drainage, electricity

supply including captive power plant, effluent treatment plant, telecommunication lines, solid

/ hazardous waste management, incinerator, etc

(b) Buildings for support services like administrative buildings, crèche / canteen / hostel / rest

and recreation facilities, facilities for labour, marketing support system, etc

(c) Buildings and equipment / machinery for common facilities for characterization,

prototyping & virtualization, non-destructive material testing, incubation, training,

warehousing, plastic recycling, tooling, designing, Research & Development, etc

(d) Administrative and other management support including the salary of CEO for the project

implementation period

(e) Assistance for engaging engineers/ architects / construction management / other experts

(f) Besides the above mentioned components aimed at creation of infrastructural facilities, the

scheme shall also support initiatives which are soft in nature to ensure that the capacity of the

beneficiary SPV and member enterprises is suitably strengthened in order to absorb,

implement and sustain the proposed initiatives. These illustratively could include surveys /

studies, sensitization / awareness generation, skill development / training at various levels,

exposure visits, etc

The above list of common facilities is illustrative and each park may have its own specific

requirements based on the nature of units being set up and the products proposed to be

manufactured in the parks. The Scheme Steering Committee (SSC) approves the project

components and funding thereof depending upon the merits of the proposal

(3) Implementation

The implementing SPV should be a distinct legal entity formed by the State Government or

its agency such as State Industrial Development Corporation or any equivalent state entity as

identified and recommended by the respective State Government in association with user

enterprises representing the plastic sector / sub sector. The SPV is ordinarily a Company

registered under Companies Act 1956. Any other structure will be subject to the approval by

SSC. Programme managers are to be appointed to assist department and state government

will make environment conducive for setting up of parks


Following are the agencies made responsible for the above mentioned activities:



Implementing Agency Activity

Special Purpose Vehicle (SPV) • Preparation of DPR with complete technical and

financial details and procurement of land.

• Allocate sites to industry, maintain assets.

• Appoint Business Development Service

provider/consultant/contractor.

• Achieve financial closure for the project

• Statutory approval and clearances including

environmental from Government and other bodies

& furnish requisite information

Programme Manager (PM) • Devise operational guideline and sensitize

industries, formulate evaluation criteria.

• Appraisal of the DPR, Monitoring the scheme

progress and furnish regular reports.

• Release of grant to SPV based on achievement of

milestone in timeline.

Scheme Steering Committee (SSC) • Induct representatives of the industry

associations, R & D institutions and other expert/

technical agencies as members or special invitees

.

State Government • Nominate and recommend state agency for

execution of project, participation in SPV and

providing necessary assistance & providing

conducive labor environment

(5) Funding Pattern

• Funding is provided up to 50 % of the project cost subject to a ceiling of Rs. 40 crore

per project. The remaining contribution in SPV is from State Government or State



Industrial Development Corporation or similar agencies of State Government,

beneficiary industries and loan from financial Institutions

• Equity contribution of the State Government agencies is at least 26% of the cash

equity of the SP (excluding value of any land given as equity)

• Cost escalation due to any reason has to be borne by the State Government agencies.

• The grant-in-aid is released in 4 phases subject to identification of milestones and

time limit which is decided by SSC

The funding is subject to the following:

• A minimum of 25 per cent of the Grant-in-aid should be earmarked for common

enabling facilities dedicated to plastic processing industry like characterization,

prototyping & virtualization, non-destructive material testing, incubation, training,

warehousing, plastic recycling, tooling design, Research & development, etc

• Assistance for Administrative and other management support of SPV including the

salary of CEO for the project implementation period shall not exceed 5 % of Grant-in-

aid of the overall project cost

• Assistance for engaging engineers / architects / construction management / other

experts for execution of civil works shall not exceed 5 % of Grant-in-aid of the

overall project cost

Also, assistance for soft initiatives is over and above the grant provision for infrastructure

components and is to an extent of 75 % of the cost of soft interventions not exceeding Rs 50

lakhs per project. This amount may be met from within the total grant to be given for each

project

SPVs may dovetail funds from other sources as well for the project, provided there is no

duplication of funding for the same component / intervention



(X) Electronic Manufacturing Clusters Scheme, Department of

Electronics & Information Technology, Ministry of Communication

& Information Technology, GoI

Department of Electronics and Information Technology has adopted Electronic

Manufacturing Clusters Scheme to provide world class infrastructure for attracting

investments in Electronics Systems Design & Manufacturing (EDM) Sector

(1) Objectives


• To provide assistance for setting up of ‘Greenfield EMCs’ and upgradation of

‘Brownfield EMCs’ with world class logistics and infrastructure and easy to do

business

• To support development of appropriate infrastructure to support the development of

logistics hub, port to factory linkage, roads and highway etc

(2) Activities


• Basic Development – Boundary wall, Internal Roads, Street Lightening etc.

• Essential Services – Government support office, Water Treatment Plant, waste

disposal/recycling, Electricity Sub-Station, Backup Power Plant, Warehousing etc.

• Welfare Services – Employee Hostel & Mess, Hospital and ESIC, Educational

Facilities etc.

• Support Services – Centre of Excellence, R & D services, Training Facility, IT

Infrastructure/ Telecom etc.

• Manufacturing Support – Packaging, Testing and Certification Facility etc,

Component Testing including Safety, Electrical & Mechanical Properties, RoHS

Testing etc.

• Government Regulatory Support/ Services – Development Commissioner, Tax

Support, Pollution Control etc

(3) Implementation

It is necessary to form an SPV prior to setting up of and running the proposed EMCs. An

SPV should be a clear legal entity (Company or Society) constituted as per the structure



specified by the Department of Electronics and Information Technology with the objective of

establishing an EMC by way of development of the requisite common infrastructure and

facilities within the scope of the EMC Scheme. Each EMC shall have a separate SPV for

management & implementation of the project.

A Steering Committee for Clusters (SCC) is constituted for proper implementation of project.

The SCC may include any activity which in its opinion would serve towards achieving the

objective of the Scheme.

A Project Monitoring Unit (PMU) is established by Department to oversee the

implementation of the project. It helps the department to assist in processing and appraising

the preliminary applications and final applications received under the Scheme.

(4) Funding Pattern

• Only those applications involving project with financial assistance of Rs. 10 crore or

more from the Government are considered.

• Government grant in processing area is maximum 50% of the project and in non

processing area it is maximum of 20 % of the project.

• For Greenfield EMCs:- Minimum 80% of land has to be allotted to processing area

and 20% of the land is allocated to non-processing area. The assistance is restricted to

50 % of Project cost, subject to maximum up to Rs. 50 crore per 100 acres of land.

For larger areas, pro–rata ceiling is applied. For lower extent, the support is decided

by the SCC subject to the ceiling up to Rs. 50 Crore. The remaining project cost is

financed by other EMC stakeholders with at least 25% from units within the EMC.

• Brownfield EMCs: - The financial assistance is limited to 75% of the project cost with

ceiling of Rs. 50 crore. The remaining project cost is financed by other EMC

stakeholder with at least 15% from unit within EMC

• The applicant specifies the minimum committed investment by the constituent units

as a part of preliminary application. The minimum committed investment by the

constituent units of the EMC is not less than 4 times the assistance sought under the

scheme.

• 75% investment in the cluster should be related to units which are manufacturing

electronics products as mentioned in M-SIPS guidelines.



• Administrative expenses are restricted to 3% of central assistance. Administrative

expenses shall only be provided to an SPV and not to chief promoter and cost of

preparation of DPR is considered as a part of administrative expenses.

• Government assistance should not exceed 25% of approved administrative

expenditure on pay and allowances of SPV.



ChapterChapterChapterChapter----5555: Implementation St: Implementation St: Implementation St: Implementation St

Major Schemes Covered UMajor Schemes Covered UMajor Schemes Covered UMajor Schemes Covered U


Presently, the total number of Integrated Textile Parks approved under the Scheme is 61

across the country with a total approved project cos

locations)

The total amount of grant sanctioned to the Parks is Rs. 2218 crore out of which about Rs.

1107 crore has already been disbursed to the Parks. Out of the 61 approved Parks, 13 Parks

have already been completed, although in 27 Parks, units are already operational. The Parks

have generated more than 50,000 direct employments and so far, attracted FDI

Rs. 1000 crore

The impact of Scheme for Integrated Textile Parks (SITP) on overall economy, env

of the region, employment generation and other social aspects has been observed to be quite

encouraging. Evaluation of the scheme has revealed that it has created high

the Textile Industry in the country to enhance competitiveness



: Implementation St: Implementation St: Implementation St: Implementation Statuatuatuatus of s of s of s of the the the the

Major Schemes Covered UMajor Schemes Covered UMajor Schemes Covered UMajor Schemes Covered Under the Studynder the Studynder the Studynder the Study

Scheme for Integrated Textile Parks (SITP), Ministry of Textiles


across the country with a total approved project cost of Rs. 6200 crore (see map for the



eted, although in 27 Parks, units are already operational. The Parks

have generated more than 50,000 direct employments and so far, attracted FDI

The impact of Scheme for Integrated Textile Parks (SITP) on overall economy, env


encouraging. Evaluation of the scheme has revealed that it has created high-class assets for

the Textile Industry in the country to enhance competitiveness and upgrade technologies. The


the the the the

nder the Studynder the Studynder the Studynder the Study

Scheme for Integrated Textile Parks (SITP), Ministry of Textiles


see map for the



eted, although in 27 Parks, units are already operational. The Parks

have generated more than 50,000 direct employments and so far, attracted FDI of more than

The impact of Scheme for Integrated Textile Parks (SITP) on overall economy, environment


class assets for

and upgrade technologies. The



scheme has been instrumental in addressing the problem of fragmentation of industry by way

of creating vertically integrated value chain within the Parks. It has also increased the ability

of the industry in meeting the regulatory and trade compliances in the areas of environment,

quality and social standards and thereby providing greater market access. The scheme, by

establishing large Parks with multiple units in the value chain available at one location, also

helped to attain economies of scale by attracting the attention of large scale global and

domestic buyers. The unit cost of production for the units located outside the Parks have also

been reduced due to sharing of common infrastructure and reduced lead times in procurement

of inputs

The SITP have had its share of implementation challenges which delayed some of the

projects. Some of the major challenges faced by the projects are given below in brief:

• Delays in obtaining the approvals for conversion of land and PCB related

• Delays on the part of SPV in arriving at consensus and decision on the project

configuration

• Inability to raise the bank loans by SPV as well as member enterprises

• Absence of cohesive structure amongst members with regard to management issues

• Inability of small entrepreneurs to adhere to corporate governance guidelines

In view of the challenges, the Ministry of Textiles has proposed some steps to assist in

efficient implementations of the projects. MoT has proposed to execute MoA with the State

Governments to ensure early clearances to the Textile Parks proposed in the State. To check

the delays on the part of SPV in arriving at consensus and decision on the project

configuration, MoA is being executed with the SPV which has penalty clauses in case of

delay in implementation of the Project. The Project Management Consultant has also been

advised to assume greater responsibility of ensuring that likeminded people are inducted into

the SPV, in event of a Project getting cancelled due to inability of the PMC to implement,

penalty would levied on the PMC. The MoT has also decided that the proposals to be

submitted for consideration under the Scheme should be appraised by the Banks and weight

age has been assigned for proposals vetted by the Bank being submitted for approval



Based on IL&FS Clusters’ experience as PMA with the Ministry of Textiles for the scheme

implementation, it has been found that there are certain common attributes of successful

textile parks which are as follows:

• Strong SPV promoted by a group of anchor textile entrepreneurs with proven

credentials and with ability to raise the bank loans

• Enhanced State Government role in setting up the Park and its pro-active support in

facilitating the external infrastructure and clearances

• Availability of land with clear title and land use conversion, if required

• Supply chain within the Park leading to economies of scale and emergence as

sourcing hubs for international buyers

• Shared infrastructure like ETP, skill development centres, testing labs, and others with

a robust O&M framework reducing the cost of operations for individual units

• Appointment of reputed contractors with requisite resources who can execute the

works at faster pace

(II) Micro and Small Enterprises–Cluster Development Programme


(MSME)

The programme strives to achieve the following four objectives of a) Supporting the

sustainability and growth of Micro and Small Enterprises b) Building capacity of Micro and

Small Enterprises c) Creating/upgrading infrastructural facilities in the new/existing

industrial areas/ clusters of MSEs and d) Setting up common facility centres

The scope of the scheme is limited to the following four components:

i. Diagnostic Study

ii. Soft Intervention

iii. Setting up of Common Facility Centres and

iv. Infrastructure Development

The component wise distribution of completed activities under this scheme is as follows:



Sl No Component

Total

Number of

Clusters

%

distribution

1 Diagnostic Study 361 49%

2 Soft Intervention 218 30%

3 Setting up of Common Facility Centres 27 4%

4

Infrastructure Development - New 85 12%

Infrastructure Development – Up-gradation 43 6%

Total 734 100%



Out of 39 projects sanctioned in the 10th and 11th Five Year Plan periods under Industrial

Infrastructure Upgradation Scheme (IIUS), 21 projects have been completed and the

remaining are at various stages of implementation. Sanction has been withdrawn in respect

of two projects as these projects could not start implementation activities in more than two

years despite efforts made by this department. There has been a delay in most of the projects

on account of land related issues and environment clearance. Some projects have also been

delayed on account of shortfall in contributions from Industrial stakeholders and State

Governments. The findings of the Evaluation Study of NPC(National Productivity Council)

done in 2011 indicates that the scheme has provided a robust platform for development of

common facilities like Research & Development labs, Skill Up-gradation Centres, Common

Tool Rooms, Prototyping Centres, Effluent Treatment Plants and basic infrastructure (road,

water, supply, power, etc.) which are essential for the clusters as majority of these clusters

belong to Small and Medium Enterprises who have taken up green initiatives and

components to curb pollution. During the 12th Five Year Plan, the IIUS has been revised as

‘Modified Industrial Infrastructure Up-gradation Scheme (MIIUS)’ and under this scheme



only State Implementing Agency (SIA) such as State Industrial Development Corporation is

authorised to implement the project. Due to modification in the scheme, projects in the 12th

Plan Period cannot be undertaken by SPV or Special Purpose Entity (SPE), however new

projects have been undertaken through SIA. The overall performance and achievement of the

Special Purpose Vehicles (SPVs) for implementation of 39 projects sanctioned during the

Tenth and Eleventh Five Year Plan Periods are deemed to be satisfactory4

The following table provides the detailed project wise progress status of the scheme in the

identified clusters during the 10th and 11th Five Plan:

4 http://pib.nic.in/newsite/PrintRelease.aspx?relid=106285, accessed on 4-august-2014

Study on Financing Models and SPV Structures in Respect of Common Industrial Infrastructure/Facilities for MSMEs Under PPP and Private Ownerships

56

Sl No Name of the Industrial Cluster State

Total

Project

Cost (Rs.

Cr.)

Approved

GOI grant

(Rs. Cr.)

Released

GOI grant

(Rs. Cr.)

Funds generated from

all

stakeholders (Financial

Progress in Rs. Cr.)

Physical

Progress

1 Pharma Cluster, Hyderabad Andhra Pradesh

66.16 49.62 48.13 62.08 Complete

2 Chemical Cluster, Ahmedabad Gujarat 71.35 41.39 40.14 69.41 Complete

3 Chemical Cluster, Ankleshwar Gujarat 152.83 50 49.47 161.4 Complete

4 Chemical Cluster, Vapi Gujarat 54.31 40.49 39.27 71.25 Complete

5 Foundry Cluster, Belgam Karnataka 24.78 18.58 18.02 24.38 Complete

6 Machine Tools Cluster, Bangalore Karnataka 135.5 49.12 47.64 149.09 Complete

7 Textile Cluster, Ichalkaranji Maharashtra 65.07 32.7 31.72 67 Complete

8 Auto Components Cluster, Pune Maharashtra 59.99 44.99 44.54 63.05 Complete

9 Auto Components Cluster, Pithampur

MP 62.97 47.23 45.81 67.64 Complete

10 Textiles Cluster, Ludhiana, Punjab Punjab 17.19 12.69 12.3 17.24 Complete

11 Marble Cluster, Kishangarh Rajasthan 27.84 26.04 26.77 50.17 Complete

12 Auto Components Cluster, Chennai Tamil Nadu 47.49 27.74 26.9 54.67 Complete

13 Cereals Pulses & Staples Cluster, Madurai

Tamil Nadu 39.96 29.97 29.07 40.03 Complete

14 Foundry/Pump/Motor Cluster, Coimbatore

Tamil Nadu 55.3 39.39 38.99 55.57 Complete

15 Leather Cluster, Ambur Tamil Nadu 67.33 43.93 43.49 96.34 Complete


57

16 Textiles Cluster, Tirupur Tamil Nadu 143 50 49.5 157.6 Complete

17 Multi Industry Cluster, Haldia West Bengal 58.85 35.97 34.89 52.76 Complete

18 Iron & Steel Cluster, Raipur Chhatisgarh 55.06 31.76 30.79 58.33 Complete

19 Metallurgical Cluster, Jajpur Odisha 80.6 47 45.59 88.16 Complete

20 Coir Cluster, Alappuzha Kerala 56.8 42.6 41.31 54.75 96%

21 Auto Components Cluster, Vijaywada

Andhra Pradesh

30.67 23.01 22.31 30.66 98%

22 Leather Cluster, Kanpur Uttar Pradesh 14.34 9.32 8.83 13.56 Complete

23 Gem & Jewellery Cluster, Surat Gujarat 61 45.61 44.15 45.64 75.75%

24 Rubber Cluster, Howrah West Bengal 29.74 15.71 14.835 27.99 94%

25 Foundry Cluster, Howrah, West Bengal 95.03 38.68 32.57 54.02 57%

26 Engineering Cluster, Nashik Maharashtra 67.26 42.87 41.59 56.48 Complete

27 Pandhurna Industrial Cluster, Chhindwara

Madhya Pradesh

66.78 43.07 41.77 61.41 92%

28 Handloom Cluster, Chanderi Madhya Pradesh

27.8 20.3 13.09 9.57 34%

29 Auto Cluster, Adityapur Jharkhand 65.63 47.79 28.42 21.4 33%

30 Readymade Garments Cluster, Jabalpur

Madhya Pradesh

55.58 30.67 16.95 19.76 36%

31 Plastic, Polymer and Allied Cluster, Balasore

Odisha 81.9 58.2 33.14 36.89 45%

32 Tiruchirapalli Engineering and Technology Cluster, Tirruchirapalli

Tamil Nadu 102.81 58.28 34 52.08 51%


58

33 Marathwara Automobile Cluster, Aurangabad

Maharashtra 81.35 58.2 50.81 47.78 59%

34 Baddi Infrastructure, Baddi Himachal Pradesh

80.5 58.28 49.51 62.4 78%

35 Bamboo Technology Park, Guwahati

Assam 62.28 52.63 45.91 32.76 53%

36 Narol Textiles Infrastructure and Environment Management, Narol

Gujarat 145.3 58.28 17.48 39.3 27%

37 Kolhapur Foundry Cluster Maharashtra 42.63 30.92 9.27 14.71 35%

38 Handloom Cluster, Bhagalpur Bihar 20.82 15.69 1.56 Sanction was withdrawn vide order

dated 28.06.2013; the SPV has refunded the central grant.

39 Hand Tools Technology Centre, Jalandhar

Punjab 79.49 58.28 17.48

Sanction was withdrawn vide order dated 24.07.2013; the SPV has

refunded Rs. 15.22 crore of central gant and Rs. 4.40 crore of interest

earned.



Under the 12th Five Year Plan, the following list of projects has been sanctioned for

implementation by the different State Implementing Agencies:

Sl.

No. Name of Project State Central grant (Rs. Cr.)

1 Industrial Area Zuangtui, Aizawl Mizoram 15.22

2 Bodhjungnagar Industrial Area Tripura 41.9

3 Industrial Growth Centre, Urla. Raipur Chhattisgarh 12.15

4 Sirgitti Engineering Cluster Chhattisgarh 8.32

5 Industrial Infra Upgradation of IMT Manesar

Haryana 29.27

6 Industrial Infra Upgradation at IMT, Bawal Haryana 29.27

7 Industrial Area, Kandrauri HP 26.97

8 Industrial Area, Pandoga HP 33.46

9 SIDCO, Industrial Growth Centre, Samba J &K 7.45

10 Industrial Estate, Kathua J &K 12.91

11 Devipur Industrial Area Jharkhand 27.36

12 Tupundana Industrial Area, Ranchi Jharkhand 8.11

13 Existing Cluster at Ernakulam Kerala 45.44

14 Kolhar Industrial Area, Bidar Karnataka 48.36

15 Bangalore Aerospace Park, Devenhalli Karnataka 47.43

16 Industrial Area, Sitapur MP 12.75

17 Angul Aluminium Park Odisha 43.01

18 Punjab Small Industries and Export Corporation Ltd. (PSIEC) Estate

Punjab 16.58

Total value of 'in-principle' already issued 465.96

The following listed projects are still under evaluation by the National Productivity Council

which is the Program Management Agency (PMA) for this phase5:

5 http://pib.nic.in/newsite/PrintRelease.aspx?relid=108334, accessed on 5-august-2014



Sl. No. Name of the project State

Proposed

Central

Grant(Rs.

Crore)

Reasons for Pendency

1 Pashamylaran Industrial Area, Medak

Telengana 30.51

The State Implementing Agency (SIA) revised their project proposal and the same has been evaluated by PMA; the proposal is under consideration in the Department.

2 Textile park at Addl. Amravati Industrial Area

Maharashtra 33.55

These proposals were received after the cut-off date prescribed by this Department and therefore, could not be considered along with the proposals received on or before the due date. These are being evaluated by PMA for further consideration by the Department.

3 Tarapur Industrial Area Maharashtra 12.5

4 Rajiv Gandhi Info Tech Park

Maharashtra 12.5

5

Tamilnadu Chamber Linkage Infra Ltd., Madurai (Convention and Centre at Madurai)

Tamil Nadu 44.05

6 Engineering Industry Cluster ( SIPCOT)

Tamil Nadu 60

7 Chemical park under MIIUS at Howrah

West Bengal

Not mentioned


Industries (MoFPI)

As mentioned earlier, the MFPS envisages a cluster-based demand driven approach for

developing decentralized infrastructure including farm proximate facilities such as primary

processing centres (PPC) and collection centres (CCs) and a Central Processing Centre

(CPC). The CPC (spread in at least 50 acres of contiguous land) would have need-based

common infrastructure which may include warehouses, cold storage including CA & MA,

IQF, Tetra Pack, ripening chamber, Quality Control Labs and R&D Facility including

incubation center etc. It would also have basic enabling infrastructure like road, water, power,

ETP & STP etc. The grant assistance shall be utilized exclusively towards creation of

common infrastructure in CPC and PPCs in the park. Such facilities are expected to

complement the processing activities of the units proposed to be set up at the CPC in the park



The supply chain will establish on-farm Primary Processing Centre cum cold chain facilities

for aggregation of the produce at village level, which will be linked to the retail as well as to

CPC through appropriate produce aggregation facility and collection centre-cum-cold chain

and reefer transportation net works

The food processing units would be located at CPC. The developed plots at the CPC shall be

leased out to them on a long term lease basis. The processing units that can be set up in the

Parks are expected to be in line with the availability of various processable raw materials.

Such units can avail the benefits of common facilities on a user fee basis

(1) Implementation Status

The summary table of the number of projects approved by the Ministry (starting 2008-09 till

date) is given below:

Mega Food Parks Scheme

Status of Projects

In-Principle

approval

Final

Approval

Cancelled/

withdrawn

1st Phase of Implementation 1 8 1

2nd Phase of Implementation - 4 1

3rd Phase of Implementation 17 4 6

Total 18 16 8

As can be seen, the Ministry has approved projects in a phase-wise manner. Thus, a total of

42 projects have been taken up by the Ministry during the 11th and 12th plans. Of this, 16

projects have been accorded final approval and 18 projects have been given in-principle

approval. EOI for remaining projects has been invited with last date of submission being June

30, 2014. The state-wise distribution of Parks which have been granted approval by the

Ministry is given in the exhibit below:



IPA: In-Principle Approval and FA: Final Approval

A summary chart for investment and grant numbers is given below: (Figures in Rs. Cr)

*: Data for third phase is not available

State IPA FA Total

Andhra Pradesh 2 1 3

Assam 0 1 1

Bihar 2 1 3

Chhattisgarh 2 0 2

Gujarat 2 0 2

Haryana 1 0 1

HP 2 0 2

J&K 0 1 1

Jharkhand 0 1 1

Karnataka 0 1 1

MP 0 1 1

State IPA FA Total

Maharashtra 4 1 5

Mizoram 1 0 1

Puducherry 1 0 1

Punjab 0 1 1

Rajasthan 0 1 1

Tripura 0 1 1

UP 2 0 2

UK 0 2 2

WB 0 1 1

Total 18 16 34

21 states to which Parks have been allotted

934

400

534

269

561

449

200249

55104

416

200 216

Project Cost Amount of Grant

Approved

Pvt. Sector

Investment (SPV)

Amount of Grant

Released*

Total Expenditure

Till Date*

Financial Layout of Mega Food Park

1st Phase 2nd Phase 3rd Phase

1799 800 999 314 665TOTAL (in

Rs. Cr.)



(2) Impact Assessment/Success Stories

Assuming an average project cost of Rs. 115.00 crore, these 42 Parks will have a cumulative

investment of approx. Rs. 4800 crore. Total government grant outlay in these projects would

be approximately Rs. 2100.00 crore

It is expected that on an average, each project, upon completion, will have around 30 food

processing units with a collective investment of around Rs 250 crores that would eventually

lead to an annual turnover of about Rs 450-500 crores and creation of direct and indirect

employment to the extent of about 30,000 persons

At present, six projects are at an advanced stage of implementation. These are:

i. Srini Food Park, Andhra Pradesh

ii. Patanjali Food and Herbal Park, Uttarakhand

iii. Integrated Food Park, Karnataka

iv. International Food Park, Punjab

v. Jangipur Bengal Food Park, West Bengal

vi. Indus Food Park, Madhya Pradesh

Mega Food Parks – A snapshot

• 16 Parks under implementation – each Park shall provide developed infrastructure

for setting up about 30 processing units leading to a total of about 450-500 units

• 18 more projects in pipeline - Shall provide for setting up about 500-550 units

• EoI for 5 more Parks out - opportunity for ~150 processing cum ancillary units

• Approx. Rs. 250 crore expected to be invested in these units in each. Hence,

approximately 40 parks would imply cumulative investment of approx. Rs. 10000

crore (in addition to the project cost numbers mentioned above)

• Overall, the 42 Mega Food Parks shall provide state-of-the-art facilities for setting

up of about 750-800 food processing including ancillary units



Of these, the ones in Andhra Pradesh and Uttarakhand are in the most advanced stages.

Having started commercial operations, these projects have started to embody the objectives

of the Scheme – investment mobilization, employment creation, wastage reduction,

streamlined supply chain operations to name a few. A snapshot of key numbers is given in

the following table:

#

Patanjali Food and Herbal

Park, UK Srini Food Park, AP

1 Total Number of

Plots Approx. 25 plots in 35-37 acres

35 acres of land is available

for approx. 15-20 plots

2 Units in Operation

17 units operational (in addition

to this, 1 more plot has been

allotted recently). Total area

Allotted is approx. 30 acres

20.39 acres has been allotted

to 7 units. 1 Unit in

operation in an area of

approx. 3 acres

3 Employment

Generation

5000 (direct and indirect

combined)

25 permanent and 40-50

seasonal

4 Turnover of Units Over Rs. 250.00 crore Over Rs. 200.00 crore

Some of the products being manufactured in Patanjali Food and Herbal Park include juice,

candy, murabba, flour, spices, besan etc. Products for which units are being/have been set up

in Srini Food Park include noodles, sauces, pickles and juices

It is expected that as other parks commence commercial operations in due course, they will

have similar impact on aspects like employment, wastage reduction and supply chain

operations in the cluster to which they shall cater

(3) Learning and Modifications in Guidelines

The Scheme was launched in 2008-09 when 10 projects were accorded approval by the

Ministry. Subsequently, as has been mentioned above, 34 projects have been approved by the

Ministry till date. Five years down the line, only two projects have commenced commercial

operations. No project has yet been able to avail the entire grant of Rs 50.00 crore allocated

to it. This half decade has been a learning experience both for MoFPI and for entrepreneurs

implementing the projects. In order to make the Scheme more investor friendly and smoother



to implement, MoFPI has time and again revised the Scheme Guidelines. Some of the

learnings and resulting revisions in Guidelines are highlighted below –

1. Arranging for project land has been observed as a key reason for delay: Arranging for

minimum 50 acres contiguous land with CLU for industrial use has been one of the

biggest challenges for promoters, especially in hilly regions. Issues such as land ceiling

laws, no sub-lease permissions in state government laws in many states, time taken to

obtain environmental clearances etc have not helped the cause. Over time, Ministry has

now started giving more weight to projects which have land upfront at EoI stage (initial

screening stage). Also, final approval is accorded only when promoters have land in

possession with CLU permission so that no delays are caused post final approval. State

Governments have now been made an integral part of selection and approval process.

With this, state governments are being sensitized about the requirements of the Scheme,

and in turn, they are making suitable modifications in the land related laws

2. Lack of adequate response from large and recognized players in food processing sector:

The first set of Guidelines required the SPV to have at least five independent entities. The

number was later reduced to three. This condition was found to be restricting as many

large entities were keen on setting up such projects on their own. Based on feedback from

the industry and consultations with other stakeholders, the Guidelines have now been

further modified and a single entity can also implement the project. Also, while in the

earlier set of Guidelines, having a food processor member was a must, new Guidelines

have done away with this condition so as to encourage participation by large players in

the infrastructure space

3. The Scheme earlier required only in-principle approval for term loan component before

final approval. This led to significant delays as in most cases formal sanction of term loan

took more than 6 months even as SPVs awaited this sanction before going ahead with

project construction and award of contracts. After Financial closure too, it was observed

that pre-disbursement conditions imposed by the banks were too strict to be met in some

cases. Banks are now being sensitized about the Scheme by PMAs and PMCs. Revised

Guidelines have made sanction of term loan along with submission of bank appraisal

report a pre-requisite for Final Approval. This is expected to improve the quality of DPRs

being submitted by SPVs and make them more realistic. It is also likely to assist

Ministry/PMA in appraisal and approval exercise and in significantly reducing the project

implementation period



4. Scheme Guidelines earlier provided for release of 10% of approved grant as advance after

Final Approval and SPVs providing proof of equity contribution of 10 %. They did not

require SPVs to incur any expenditure except for land acquisition cost. Revised

Guidelines require expenditure certificate from SPVs for at least 10 % of equity

contribution (term loan plus equity) out of eligible project cost. SPVs are now required to

incur expenditure on project components, in addition to land and pre-operative

expenditure, before receiving any grant. Grant installments are now also linked to clear

and proportionate physical progress not only on core processing infrastructure at CPC but

also on other project components like PPCs, SDF sheds and leasing units. These

modifications are likely to assist in more holistic development of projects

5. Guidelines now envisage a greater involvement of State Govt. for effective project

implementation. State Govt. representative is now member of both the Technical

Committee (TC) and the Approval Committee (AC). Ministry is also encouraging State

Govt. Representatives to be part of SPV’s board

6. Another modification in the Guideline has been the redefining of the eligible Project Cost

for grant eligibility. Eligible project cost was earlier defined as total project cost minus

cost of land. Eligible project is cost now defined as total project cost minus (-) cost of

land, pre-operative expenses and margin money for working capital (MMWC). However,

PMC Fee (up to 2 percent of eligible grant) and interest during construction (IDC), both a

part of pre-operative expenses, shall be part of the eligible project cost

7. Based on experience during project implementation, project implementation timelines

have been made more realistic - 24 months from 1st installment to begin with, 30 months

from Final Approval in first set of modification and 30 months from 1st installment in the

latest revision of the Guidelines. the rationalization of timelines

(4) Concluding Remarks

As concluding remarks on the performance of the Scheme, it can be said that while it was

slow to take off due to reasons highlighted above, a more conducive implementation

environment and more investor-friendly Scheme Guidelines may go a long way in ensuring

timely execution of such projects. While two projects are already operational, another 3-4

projects (in West Bengal, Punjab and Karnataka) are expected to be complete within in this

financial year. Hence, close to half a dozen operational projects by end of FY 2014-15 will

serve as a boost not only to MoFPI’s initiatives but also to other private players executing



these projects in other parts of the country. Overall, the Scheme has the potential to augment

food processing related operations in India. The growth of the sector, as is well documented,

is critical for achieving growth in the agricultural sector which in turn is a pre-requisite for

holistic growth of Indian economy. Growth of sector is also essential to meet twin national

objectives of “inclusive growth” and “food security”. Importantly, the growth of this sector

will reduce food wastage across value chain (value terms) and is also seen as a means of

curbing inflationary tendencies. The successful implementation of the Mega Food Parks will

help, in its own unique way, in providing fillip to the above mentioned positive ripple effect

(V) Scheme for Cold Chain, Value Addition and Preservation


The SCC is one of the successful schemes of the Ministry of Food Processing Industries, GoI

which is being implemented since 2008. Presently, 122 approved integrated cold chain

projects in 4 phases (the latest being in 2013 and the 5th phase in underway in which selection

of projects is in process and are yet to be approved) are under different stages of

implementation across the country. The summary table of the number of projects approved by

the Ministry (starting FY 2008-09 till date) is given below:

Cold Chain Scheme Projects Approved

1st Phase of Implementation 10

2nd Phase of Implementation 28

3rd Phase of Implementation 18

4th Phase of Implementation 66

Total 122

The total project cost of the all the approved cold chain projects is more than Rs. 2800 crore

with a approved grant amount of about Rs. 950 crore, out of which about Rs. 328 crore has

been disbursed to the projects. Out of the 122 approved cold chain projects, 24 projects are

completed and operational. Another 13 projects have also reported to be completed and the

final verification/ release of the final installment of grant by the Ministry are pending in these

cases. Recently, the Ministry has come out with another invitation for EOI for about 15 more

cold chain projects under the scheme. The appraisal process for the same is underway. The



state-wise distribution of Cold Chain Projects which have been granted approval by the

Ministry is given in the exhibit below :

Sl. No. Name of State No. of Projects Sl. No. Name of State No. of Projects

1 Andhra Pradesh 7 13 Maharashtra 31

2 Arunachal Pradesh 1 14 Manipur 1

3 Assam 4 15 Mizoram 2

4 Bihar 1 16 Odisha 1

5 Chhatisgarh 2 17 Punjab 7

6 Gujarat 8 18 Rajasthan 3

7 Haryana 5 19 Sikkim 1

8 Himachal Pradesh 9 20 Tamil Nadu 1

9 Jammu & Kashmir 4 21 Uttar Pradesh 6

10 Karnataka 4 22 Uttarakhand 11

11 Kerala 3 23 West Bengal 7

12 Madhya Pradesh 3 Total 122

(1) Revisions under National Mission of Food Processing (NMFP)

Based on the stakeholders’ feedback and deliberation during the Working Group for 12th Five

Year Plan, the scheme has been revised for non-horticulture produces which are now being

implemented under National Mission of Food Processing by the state governments (although

the for horticulture produces, the MoFPI still implements the scheme directly). Under NMFP,

the financial incentives are given now in two parts: Capital Subsidy and Interest Subsidy

The above has been designed to ensure that project assets, after completion, are efficiently

utilized. This was based on the suggestion that many of the projects after completion, and

receiving entire grant amount, are not operated in optimal manner. Under the revised

framework, the applicants have to ensure operation of the facilities to avail entire grant. This

was also to address the concerns that assistance to cold chain projects would be more critical

during operation phase than implementation phase

The capital subsidy has been reduced to 35% of the bank appraised project cost including

Interest during Construction (IDC), subject to a maximum of Rs. 5 crore per project. There is

also interest subvention available for a period of 5 years from the date of completion of the

project. Every year the interest subsidy @ 6% will be paid to the Bank/FI directly against the



term loan sanctioned by it, subject to a maximum of Rs. 2 crores per project or actual interest

accrued on term loan, whichever is less

In Difficult areas and NER, the capital subsidy is now up to 50% of the bank appraised

project cost including Interest during Construction (IDC), subject to a maximum of Rs. 5

crores per project. The interest subvention is available for a period of 7 years from the date of

completion of the project. Every year the interest subsidy @ 7% will be paid to the Bank/FI

directly against the term loan sanctioned by it, subject a maximum of Rs. 3 crores per project

or actual interest accrued on term loan, whichever is less

Another significant revision under the scheme for NMFP has been that for all the projects,

there needs to be term loan of at least 25 % of the project cost. This was considered advisable

as many applicants did not propose term loan for their projects or provided for small term

loans (even less than 10 % of project cost), which made the entire appraisal exercise

unreliable. It may be noted that under the Scheme, the Ministry relies mostly on bank

appraisal notes, to establish technical and financial viability of the projects, as also

commitment and resourcefulness of the promoters. Thus, in case of no loan or insignificant

loan amount, the appraisal notes from banks/financial institutions were not found adequately

detailed and trustworthy

The scheme so far has achieved considerable progress and witnessed very encouraging

response from stakeholders. The approved projects would be creating more than 2 lakh MT

of cold storage, 1.3 lakh MT of MA/CA storage, 55,000 MT of Deep Freezers, about 100

MT/Hr capacity of Individual Quick Freeze (IQF), 100 Lakh Litres/Day of milk processing

facilities and more than 600 refrigerated vehicles. Presently, it has been observed that the

projects, which are being funded under the Scheme, generally do not face any major issues

regarding sanctioning of term loans from banks and other financial institutions. This is due to

relatively large amount of grant from the Ministry and reduced risk exposure of the banks

through security cover. Although such favourable views of the banks/ FIs towards the cold

chain projects lead to financial closure without many hindrances, however, it may lead to less

rigour and detailing in the appraisal process of the banks/ FIs for the projects and may also

result in less due diligence of the projects by the banks/ FIs during the project execution and

operational phases. In the past, some projects may have been cancelled due to such issues

Apart from modifications made under the NMFP, the Scheme was also modified for

horticultural produces (which is directly implemented by the Ministry) in 2013. The major



modifications made are the mandatory requirement of term loan from banks/ FIs of at least

10% of the project cost and revision of project implementation timeline from 18 months to 24

months in case of projects in general areas. In case of projects located in Northeast and hilly

areas the implementation timeline was increased to 30 months instead of 18 months



Textiles

To make decentralized activities in handicraft sectors a viable business proposition, mega

clusters have been promoted in Bhilwara (Rajasthan), Mirzapur-Bhadohi (Uttar Pradesh),

Srinagar (Jammu & Kashmir), Virudhunagar (Tamil Nadu) and Murshidabad (West Bengal).

Subsequently more work has commenced on mega clusters in Varanasi (Uttar Pradesh),

Sibsagar (Assam), Bhiwandi, (Maharashtra), Erode (Tamil Nadu), Narsapur (Andhra

Pradesh) and Moradabad (Uttar Pradesh). In the budget presented by the Union Ministry in

for 2014-15 the following three new Mega Clusters have been proposed: (i) Bareilly, (ii)

Lucknow and (iii) Kutch. To strengthen the implementation of this scheme a multilingual

website including seven foreign languages hosting 45,000 handcrafted products has been

launched. During the year 2012 against an allocation of Rs. 37 crores an amount of Rs. 31.96

Crores has been released for incurring expenditure for ongoing sanctioned clusters located all

over India other than NER. Under the ambit of the Comprehensive Handicraft Cluster

Development Scheme, the following cluster specific infrastructure related interventions are

up taken:

� Establishment of resource centre for major crafts

� Establishment of E-kiosks

� Creation of Raw Material Banks

� Setting up of Common Facility Centre.

� Technological assistance by setting up of Facility Centres by Exporters/

Entrepreneurs, etc.

This section will briefly describe the progress of the proposed mega clusters.

� Moradabad Mega Cluster: In this mega cluster six new projects with the project

cost of Rs.57.55 crore have been sanctioned to six Special Purpose Vehicles



(SPVs) with the Government of India investing Rs.50.21 crore. Raw material

Bank for Metal Craft, Common Facility Centre for Wood procession, Common

Facility Centre for Metal Handicrafts Processing, Design & Product Development

Centre and Marketing Support Centre have been inaugurated during 2012-13.

� Mirzapur-Bhadohi and Srinagar Carpet Mega Clusters: In these two mega

clusters, Cluster Management and Technology Agencies (CMTAs) have been

appointed. For the Mirzapur-Bhadohi cluster, Skill Development Programme for

20,000 carpet weavers at total project cost of Rs. 21.67 crore and Government of

India share of Rs. 15.55 crore have been sanctioned. For the Srinagar cluster, Skill

Development Programme for 10000 Carpet weavers at total project cost of

Rs.12.75 crore and the Government of India share of Rs.10.00 crore have been

sanctioned. In addition to this distribution of 2000 improved carpet looms at

Project cost of Rs. 10.00 crore with Government of India share of Rs. 8.00 crore

has been sanctioned.

� Narsapur Mega Cluster: In this mega cluster four new projects with project cost

of Rs.41.87 crore have been sanctioned to four SPVs with the Government’s

investment of Rs.35.05 crore.

� The Detailed Project Report (DPR) for comprehensive handicrafts Cluster Scheme

for Jodhpur Mega Cluster, has been approved

The cluster development scheme for handicrafts is further divided into sub-components for

the disbursement of grant-in-aid money from the Government of India. The sub-components

are as follows:

1. Ambedkar Hastshilp Vikas Yojana(AHSVY)

2. Marketing and Support Services(MSS)

3. Human Resource Development Scheme(HRDS)

4. Design Scheme(DS)

5. Research and Development Scheme(RDS)

6. Infrastructure and Technology Development Scheme(ITDS)


72

The following table provides us with the figures on the Government grant-in-aid under the various sub-components of the handicraft clusters for

the financial year 2014-15:

STATES AHSVY MSS CL-DS CL-HRD CL-

MSS HRDS DS RDS ITDS Total

Uttar Pradesh 0.04 1.13 0.74 0.40 0.13 0.42 0.12 0.21 0.24 3.43

Rajasthan 0.02 0.00 0.12 0.12 0.01 0.00 0.00 0.00 0.00 0.27

Jammu & Kashmir 0.01 0.32 0.00 0.02 0.00 0.00 0.00 0.00 0.00 0.34 Bihar 0.01 0.02 0.85 0.08 0.00 0.00 0.00 0.02 0.00 0.97

Haryana 0.05 0.33 0.77 0.67 0.08 0.00 0.00 0.06 0.00 1.96

Punjab 0.04 0.10 0.11 0.04 0.11 0.00 0.00 0.00 0.00 0.40

Uttrakhand 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01

Delhi 0.01 4.02 0.35 0.15 0.04 0.38 0.69 0.05 8.63 14.32

Andhra Pradesh 0.01 0.00 0.06 0.02 0.01 0.01 0.00 0.00 0.00 0.10 Jharkhand 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01

Odisha 0.01 0.30 0.17 0.04 0.13 0.02 0.01 0.05 0.00 0.73

Manipur 0.02 0.00 0.00 0.00 0.00 0.00 0.02 0.00 0.00 0.03

Assam 0.00 0.42 0.00 0.00 0.00 0.01 0.06 0.02 0.00 0.50

Gujarat 0.00 0.27 0.22 0.11 0.04 0.00 0.05 0.00 0.00 0.68

Himachal Pradesh 0.00 0.09 0.08 0.13 0.00 0.00 0.00 0.00 0.00 0.30

Karnataka 0.00 0.04 0.07 0.04 0.00 0.00 0.01 0.00 0.02 0.17 Madhya Pradesh 0.00 0.29 0.85 0.33 0.02 0.38 0.05 0.02 0.00 1.95

Nagaland 0.00 0.01 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01

Tamil Nadu 0.00 0.69 0.00 0.00 0.01 0.00 0.00 0.00 0.13 0.83

West Bengal 0.00 0.06 0.00 0.00 0.00 0.00 0.07 0.03 0.00 0.16

Uttarakhand 0.00 0.04 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.04

Chhattisgarh 0.00 0.00 0.05 0.00 0.00 0.00 0.00 0.00 0.00 0.05

Kerala 0.00 0.00 0.02 0.05 0.00 0.00 0.00 0.00 0.00 0.06 Maharashtra 0.00 0.00 0.32 0.18 0.00 0.00 0.04 0.00 0.00 0.54

Manipur 0.00 0.00 0.05 0.05 0.00 0.00 0.00 0.00 0.14 0.25

Figures are in Rs Crores





The Department of AYUSH, Ministry of Health and Family Welfare, had approved nine

AYUSH clusters in eight States one each in Kerala, Karnataka, Tamil Nadu, Odisha, Andhra

Pradesh, Punjab, Rajasthan and two in Maharashtra for setting up of AYUSH industry cluster

as common facilities centre for manufacturing and testing facilities for Ayurvedic, Siddha,

Homeopathy and Unani medicines. The scheme was launched in 2008 and was to co-exist

with the 11th five year plan with a scheme outlay of Rs. 100 crore. Since then scheme has

been slightly modified and was approved for continuation into the 12th Five Year Plan by the

Expenditure & Finance Committee (EFC) in 2013 after a mid term appraisal commissioned

by the Department. The Department through the continued scheme intends to cover the

hitherto uncovered states so as to have geographical parity. Till date 10 projects have been

sanctioned with a total project cost of Rs. 160 crore and a cumulative sanctioned grant of Rs.

94 crore. One out of the 10 projects, Andhra Pradesh has been cancelled in 2013 because of

internal mismanagement in the SPV. One project has started commercial operations and has

drawn the last instalment of grant on reimbursement basis. There are three projects which

have drawn three instalments of grant and the last instalment of grant on reimbursement basis

is pending. Rests of the projects are at different stages of implementation and are likely to get

commissioned in FY 2014- 15

The following table presents the fund details of the nine AYUSH approved clusters6:

Sl No State/UT AYUSH Special Purpose Vehicle Funds Allocated

(Rs. in crores)

1 Andhra Pradesh Lepakshi Ayush Park Private Limited 10.00

2 Karnataka Ayurpark Health Care Limited, 10.00

3 Kerala CARE Keralam 10.00

4 Maharashtra Maharashtra Ayurved Center Pvt. Ltd. 9.49

Konkan Ayur Pharma Pvt. Ltd. 8.87

5 Odisha Rushikulya Ayurvedic Cluster pvt Ltd 5.99

6 http://pib.nic.in/newsite/PrintRelease.aspx?relid=82718



6 Punjab Herbal Health Research Consortium Pvt. Ltd. 10.00

7 Rajasthan M/s Ayushraj Enterprises Pvt. Ltd. 9.70

8 Tamil Nadu Traditional Ayurveda Cluster of Tamilnadu 9.65

Total 83.70

The following table presents the details of grant-in-aid released under the Central Sector

Scheme for the Development of Common Facilities for AYUSH Industry Clusters:

2008-09

S. No Name of the SPVs

Grant- in-

aid(Rs in

crores)

1 M/s Confederation for Ayurvedic Renaissance Keralam Limited 2.00

2 M/s Konkan Ayur Pharma Pvt Ltd., Sangemeshwar, Maharashtra 1.50

3 M/s Herbal Health Research Consortium Pvt. Ltd., Amritsar, Punjab 2.00

2009-10

1 M/s Mahrastra Ayurvded Center Pvt. Ltd; Pune,Maharshtra 2.50

2 M/s Ayurpark Heatlh Care Limited, Bangalore, Karnataka 2.00

3 M/s Traditional AYUSH Cluster, Pvt. Ltd;Tamil Nadu, Chennai 2.00

4 M/s Herbal Health Research Consortium Pvt Ltd.,Amritsar, Punjab 4.00

5 M/s Konkan Ayur Pharma Pvt Ltd., Sangemeshwar, Maharastrha 1.04

6 M/s Confederation for Ayurvedic Renaissance Keralam Limited 4.00

2010-11

1 M/s Mahrashtra Ayurved Center Pvt. Ltd; Pune, Maharashtra 3.50

2 M/s Konkan Ayur Pharma Pvt Ltd., Sangemeshwar, Maharashtra 1.96

3 M/s Ayurpark Heatlh Care Limited, Bangalore, Karnataka 4.00

4 M/s Lepakshi Ayur Park Pvt. Ltd; Hyderabad, Andhra Pradesh 2.00

5 M/s Rushikulya Ayurvedic Cluster Pvt. Ltd; Ganjam, Odisha 1.20

In addition to the above mentioned SPVs, M/s Assam Ayurvedic Consortium Pvt. Ltd in

Assam, M/s CG Ayursh Health Pvt. Ltd in Chattisgarh and M/s Sanskar Ayush Medicare



Pvt. Ltd in Uttrakhand have received “Conditional In-principle Approval”. The cancelled

Special Purpose Vehicles under the ambit of this scheme are M/s Spark Herbotech Ltd;

Hyderabad, Andhra Pradesh and M/s Maha AYUSH Park Ltd; Nasik, Pune



The Government of India has targeted to implement this scheme in the 12th Five Year Plan

period i.e. 2012-17. To this effect, the Ministry of Commerce and Industry, Department of

Industrial Policy and Promotion (Leather Section) convened a meeting on 20th January 2014,

at Udyog Bhawan where in they have constituted an Empowered Committee and a Steering

Committee for the implementation of the scheme

The roles and responsibilities of the Empowered committee have been defined as the

following:

1. Monitor the implementation of Integrated Leather Development

Programme(ILDP)

2. To suggest modifications in the guidelines of the various sub-schemes under

Indian Leather Development Programme and also suggest specific measures

required/essential to achieve the desired output for the development of the leather

sector.

3. To co-ordinate and collate information about schemes being implemented by

various Ministries/Department having connection or linkage to leather industry

and synergize/disseminate the same to all concerned for overall development of

the leather sector.

4. Approve proposals under the Sub-scheme of Indian Leather Development

Programme costing above Rs. 15 crore.

5. Approve specific issues concerning all sub-schemes of ILDP as mentioned in the

concerned guidelines.



The composition of the Empowered Committee is as follows:

Sl No Personnel Position

1 Secretary(IPP) Chairman

2 Financial Advisor, Department of Industrial Policy and Promotion Member

3 Representative of Planning Commission not below the rank of Advisor Member

4 Representative of Ministry of Environment and Member

Forests not below the rank of Joint secretary Member

5

Representative of Department of Animal Member

Husbandry and Dairying not below the rank of

Joint Secretary

Member

6 Representative of Ministry of MSME not below the Member

rank of Joint Secretary Member

7 Chairman, Council for Leather Exports Member

8 Chairperson, Footwear Design and Development Member

Institute Member

9 Managing Director, Footwear Design and Member

Development Institute Member

10 Director, Central Leather Research Institute Member

11

Representative of State Government pertaining to the State for which the

proposal under Indian Leather Development Programme is being

considered

Special

Invitee

12 Representative of the organization (s) for which the proposal under

Indian Leather Development Programme is beinq considered

Special

Invitee

13 Experts from organization having expertise on the proposal under Indian

Leather Development Pronrarnme is being considered

Special

Invitee

14 Joint Secretary (Leather), Department of Industrial Convener Policy and

Promotion Convener

The roles and responsibilities of the Steering committee have been defined as the following:

1. Ensure effective implementation, lay down procedures. decide normative prices for

standard plant and machineries required for the modernization programme, accord

sanction of financial assistance from Government, and monitor and follow up



disbursal of financial assistance from Government to the industrial units under the

sub-scheme Integrated Development of Leather Sector (IDLS);

2. Approval of proposals under the sub-schemes of Indian Leather Development

Programme costing upto Rs. 15 crore; and

3. Monitor the implementation of the projects sanctioned by the Department under

Indian Leather Development Programme.

4. Approve specific issues concerning all sub-themes of ILDP as mentioned in the

concerned guidelines.

5. Any other work assigned by the Empowered committee.

The composition of the Steering committee is as follows:

Sl. No Personnel Position

1 Joint Secretary (DIPP) Chairman

2 Director/Deputy Secretary (Finance wing),

Department of Industries Policy and Promotion Member

3 Nominee of Ministry of Commerce Member

4 Nominee of Ministry of MSME Member

5 Managing Director, Footwear Design &

Development Institute or nominee Member

6 Chief General Manager of Disbursing Bank (s)

or nominee Member

7 Chairman, Council for Leather Exports Member

8 Director (Leather), Department of Industries

Policy and Promotion Convener

9 Other Invitees as co-opted by the Chairman



The notice for inviting applicants for setting up the Mega Leather Cluster and empanelment

of Project Management Consultants are displayed below:

Notice for Invitation of Applicants for setting up the Mega Leather Cluster

Notice for Empanelment of Project Management Consultants




In the wake of the Central Government approving the National Plastic Park policy which was

further modified in 2013, four plastic parks were approved in the following states of Madhya

Pradesh, Tamil Nadu, Odisha and Assam. These four shortlisted plastic parks were in

allocated in the following regions: Paradip in Odisha, Manali Industrial Estate near Ennore

port in Tamil Nadu, Tinsukia in Assam and Bhopal in Madhya Pradesh. They are expected to

be operational in the next one to two years. In the 12th Five-Year Plan, it is envisaged that six

more plastic parks will come up in Punjab, Haryana, Rajasthan, Uttar Pradesh, Odisha and

Andhra Pradesh

The following section will briefly describe the four plastic parks that are under various stages

of implementation.

i. Assam Plastic Park

The Techno-Economic Feasibility Report was prepared by IL&FS and

submitted to Assam Industrial Development Corporation Limited which is the

designated nodal agency for this project. Possession of around 500 acres of

land at Gelapukhuri, Tinsukia was completed by 2011. In a bid to attract

investments, AIDC undertook major awareness campaigning program in

propagating among the major plastic / polymer houses in India for joining the

SPV. The total project cost is estimated at Rs 300 crore. For this purpose, two

awareness meetings on the Plastic Park were organized at Mumbai and

Ahmedabad on in 2010. In December 2013, AIDC had put out advertisement

inviting applications for allotment of park plots and currently they are

screening the applicants based on the set criteria. The short listings of the

firms are still awaited

Figure: Advertisement for inviting entrepreneurs to put up units in the

Plastic Park



ii. Paradip Plastic Park

Post the Department of Chemical and Petrochemical under the Union ministry

of Chemicals and Fertilizers had given its in-principle approval, the central

government has given its final nod for the Plastic Park project near

Paradip. This plastic park is being developed through the Special Purpose

Vehicle known as Paradip Plastic Park Limited with Indian Oil Corporation

Limited and Odisha Industrial Infrastructure Development Corporation

(IDCO) having 74 per cent and 26 per cent stakes in it respectively. The site

has been finalized at Siju village near the Paradip port. The acquisition of the

required land of 120 acres required for the project by Odisha Industrial

Infrastructure Development Corporation (IDCO) has been completed and the

construction of the park is expected to get completed by 2014.The

Odisha government expects to attract investment of Rs 2.78 lakh million in the

Paradip Petroleum, Chemicals and Petrochemicals Investment Region and

other related projects



iii. Ennore Plastic Park

The State Industries Promotion Corporation of Tamil Nadu (SIPCOT) and the

Tamil Nadu Industrial Development Corporation (TIDCO) had floated a joint

venture to implement the plastic park project which will be set in the

government owned land near the Ennore port and the Larsen & Turbo port

near Kattupalli. The plastic park is earmarked to be set up in 300 acres of land

and the total project cost is Rs 243 crore with Government of India pitching in

with Rs 40 crore in grant. The detailed project report was submitted in April

2013 and it is expected to be completed by 2016. Indian Oil Corporation has

expressed its interest in setting up a plastic container manufacturing unit. The

park will have the capacity to have over 70 such units which can generate over

25,000 jobs

iv. Bhopal Plastic Park

The proposed plastic park is being set up at Tamot village in Raisen district.

The state government has already transferred 138 acres of land belonging to

Madhya Pradesh Audyogik Vikas Nigam, Bhopal to the Special Purpose

Vehicle for setting up the park. Besides this it also exempted the land from

registration fee and stamp duty. The Madhya Pradesh Audyogik Kendra Vikas

Nigam has been appointed as the nodal agency for its implementation and the

name of the Special Purpose Vehicle is Madhya Pradesh Plastic Park

Development Corporation Ltd. The proposed plastic park will house around

150 industrial units and would create jobs for 25,000 persons directly or

indirectly. At present, 30 industrialists/ investors have deposited money for

acquiring shares in the park. The All-India Plastic Manufacturers Association,

Mumbai and its members have also signed MoU with Trade and Investment

Facilitation Corporation Limited, Government of Madhya Pradesh for

bringing major investment proposals in the plastic sector






The Electronic Manufacturing Clusters scheme was launched in April 2013. The scheme has

a two step approval process- in-principle approval and final approval. The scheme supports

setting of common facilities in Brownfield clusters and setting up of Greenfield cluster parks.

Under this scheme, 7 Greenfield parks and 1 common facility centre has been accorded in-

principle approval under the scheme till December 2013. While 6 out of the 7 Greenfield

projects are promoted by State Governments/ their agencies the remaining Greenfield and 1

common facility projects is being promoted by industry associations. The common facility

centre is proposed in Karnataka. None of the projects have been accorded final approval as of

now

The following table shows the status of the proposed Greenfield projects under this scheme:

Sl.

No State

Location of

Cluster

Proposed

Area

(Acres)

Financial outlay

(Figure in Rs. crores) Status

Estimated

Cost

GIA

sought

1 Andhra Pradesh

e-city Hyderabad

602.37 580 264 In Principle approval accorded

2 Andhra Pradesh

Maheshwaram 310.15 360 155 Non Responsive

3 Andhra Pradesh

EMPI Innovation Park Ltd.

100.00 1201.1 22.57 Under preliminary Appraisal

4 Andhra Pradesh

Chilamathur 47.00 53.48 62.5 Applications withdrawn

5 Andhra Pradesh

Puttandoddi 125.00 125 0 Applications withdrawn

6 Andhra Pradesh

Pydi Bhimavaram

0.00 0 0 Applications withdrawn

7 Andhra Pradesh

Parwada 0.00 0 63.6 Applications withdrawn

8 Andhra Pradesh

Shankarpur 175.00 130.64 276 Under preliminary Appraisal

9 Tamil Nadu

Hosur 527.08 549.5 78.5 In Principle approval accorded

10 Tamil Nadu

Coimbatore 157.00 171.11 Under preliminary Appraisal

11 Rajasthan Bhiwadi 100.66 198.64 50.35 In Principle approval accorded

12 Madhya Bhopal 50.00 45.11 21.61 In Principle



Pradesh approval accorded

13 Madhya Pradesh

Jabalpur 40.00 42.7 24.63 In Principle approval accorded

14 Madhya Pradesh

Gwalior 90.00 80.44 42.77 In Principle approval accorded

15 Madhya Pradesh

Indore 37.07 44.77 25.77 In Principle approval accorded

16 West Bengal

Naihati 70.00 74 31 NA

17 Haryana IMT Rohtak 108.00 292 54 Non Responsive

18 Karnataka Bangalore 1.17 85.15 50 In Principle app accorded

19 Karnataka Mysore 849.22 181.7 88.32 Under preliminary Appraisal

20 Karnataka CFC Kasaba Industrial Area

1.70 30.97 22.83 Under preliminary Appraisal

21 Kerala Kakkanad 75.00 250 50 In Principle app accorded

22 Kerala Kochi 43.70 244.08 50 Under preliminary Appraisal

23 Odisha Bhubaneswar 215.80 209.64 96.96 Under preliminary Appraisal

Source: Department of Electronics and Information Technology, Ministry of Communications and IT, Government of India

The following table shows the status of the Brownfield project for the Common Facility

Centre:

S.no State Location of Cluster Financial outlay

(Figure in Crores) Status

1 Karnataka Electronic

city Bangalore

85.15 In Principle approval

accorded



ChapterChapterChapterChapter----6666:::: Demand Assessment for Common Demand Assessment for Common Demand Assessment for Common Demand Assessment for Common

Industrial Infrastructure/facilities for Industrial Infrastructure/facilities for Industrial Infrastructure/facilities for Industrial Infrastructure/facilities for

MSMEsMSMEsMSMEsMSMEs

The rapid growth of the Indian economy in recent years has placed increasing stress on

physical infrastructure which already suffers from deficit in terms of capacities as well as

efficiencies. The pattern of inclusive growth averaging at 9 percent per year as conceived

under the Twelfth Five Year Plan (2012-17) can be achieved only if this infrastructure deficit

is overcome and adequate investment takes place to support higher growth and an improved

quality of life for both urban and rural communities. Based on projections provided in the

Mid-Term Appraisal of the Twelfth Plan, in order to attain a 9 percent real Gross Domestic

Product (GDP) growth rate, infrastructure investment should be on average almost 10 percent

of GDP during the Twelfth Plan. This translates into INR 41 lakh crore at 2006-07 prices

(real terms), as estimated by the Planning Commission of India. At an annual inflation rate

of 5%, this translates into an equivalent to INR 65 lakh crore in current prices

FY13 FY14 FY15 FY16 FY17

Total Twelfth

Year Plan

GDP at FY07 prices

(INR Billion) 68,825 75,019 81,771 89,131 97,152 411,898

Infrastructure investment as %

of GDP 9% 10% 10% 10% 11% 10%

Infrastructure Investment

(INR Billion in current prices) 6,194 7,127 8,095 9,180 10,395 40,992

Source: Mid Term Appraisal Twelfth Five Year Plan, Planning Commission

This section of the report will focus on assessing the demand of the projects elucidated within

the scope of this report and assess the need of such schemes. This covers the following major

schemes a) Scheme for Integrated Textile Parks b) Micro and Small Enterprises–Cluster

Development Programme c) Modified Industrial Infrastructure Up-gradation Scheme d)

Mega Food Parks Scheme e) Scheme for Cold Chain, Value Addition and Preservation

Infrastructure f) Comprehensive Handicrafts Cluster Development Scheme g) Scheme for

Development of AYUSH Clusters h) Mega Leather Cluster Scheme i) Plastic Parks Scheme



and j) Electronic Manufacturing Clusters Scheme. The major focus on such schemes

promoted by the government is creation of well equipped infrastructure for the promotion of

these sectors through a Cluster Based Approach. The design and implementation of the

schemes is a well thought out strategy by the central government wherein equal thrust is

given on skills development, technology up gradation and private sector involvement as well.

Overall these schemes seek to address the following gaps that are present in these sectors: a)

Access to finance b) Access to markets c) Access to infrastructure d) Access to people e)

Access to technology and f) Smoothening regulatory constraints.

Need for Cluster Based Infrastructure

The Report of Prime Minister’s Task Force on Micro, Small and Medium Enterprises

(MSMEs) published in 2010, identified infrastructural constraints which requires utmost

attention as MSMEs in India continue to suffer highly from infrastructural bottlenecks with

increasing competition, globalization and more recently due to uncertainty caused by global

downturn. According to the report, to sustain growth it is essential to have availability of

proper infrastructure for MSMEs. As per the report the following are the main issue faced by

MSMEs pertaining to infrastructure is that they are either located in industrial estates set up

many decades ago or are functioning within urban areas or have come up in an unorganised

manner in peri-urban or rural areas. The state of infrastructure, including power, water, roads,

etc. in such areas is poor and unreliable, leading to very high transaction costs. With the

growth of the industrial sector, including MSEs (which are an integral part of the value

chain), adequate areas for extension of MSEs are simply not available. This has resulted in

crowding of MSE operations in existing areas, often in conflict with environmental and urban

regulations. There is an urgent need for renewal and up-gradation of MSMEs infrastructure

located in existing industrial estates through cluster development approach. The development

process needs to be implemented properly and should be supplemented/ strengthened with

ample work space, captive power (within industrial estates), common effluent treatment

plants, proper water supply distribution, common tools rooms & design centre facilities, etc.

In the light of such constraints and gaps, it would be difficult for the outlined industries to

sustain their competitiveness in the absence of adequate infrastructure facilities. For example,

the dyeing and bleaching industry in Tirupur, tanneries in Kanpur, Knitwear processing

industry in Ludhiana, are all facing closure due to inadequate environment management

infrastructure. In Punjab, auto component clusters of Haryana and many other are facing

similar challenge due to technology obsolescence. The forging technology that was



introduced in late 70s is still the most prevalent technology and decades behind modern

technologies available to competing countries like China, Taiwan, etc. The sports goods

cluster in Jalandhar produces about 15 million soccer balls each year with about 30,000

workers, in comparison, a leading manufacturer of soccer balls in China produces 18 million

balls with about 6000 workers. The difference is due to adoption of technology which has

automated stitching to some extent. Similarly MSMEs in the auto component sector need

about 3 months for product development which can be achieved in less than 3 days with

access to technologies like Rapid Prototyping. The availability of such knowledge

infrastructure can address these technology related gaps. In the leather sector, which is highly

labor intensive, total capacity of institutional infrastructure for training is less than 5000

persons per annum while the demand is for more than 50,000 additional skilled workers for

the shop floor operations alone


The Indian Textile Industry contributes about 11 percent to industrial production, 14 per cent

to the manufacturing sector, 4 percent to the GDP and 12 per cent to the country's total export

earnings. It provides direct employment to over 35 million people, the second largest

provider of employment after agriculture. Besides, another 54.85 million people are engaged

in its allied activities. The primary production and inefficiency gaps that exist in the Indian

Textile Sector are as follows:

� Availability of critical input material like raw materials, manpower and

technology

� Acute shortage of new & skilled workforce in the industry

� Inadequate Support Infrastructure

� Issues impacting value addition

In the 11th Five year plan, a total of forty projects totaling Rs. 4183.26 crores in project cost

were sanctioned. In the 12th Five year plan, an additional forty parks has been sanctioned with

the total fund outlay of Rs.1400 crore by the government. During the 12th Five Year Plan the

Ministry of textiles estimates that the annual production of cloth is projected to increase from

64.90 billion square meters in 2011-12 to 111.85 billion square meters by the terminal year

i.e. 2016-17, with incremental production of 46.95 billion square meters which is a rise of



around 72 per cent. With the Textile Indus

gradation Fund (TUF) Scheme it is envisioned that much of this demand will be met by

existing industries upgraded with newer facilities.

for such scheme will rise substantially in the near future

(II) Micro and Small Enterprises


(MSME)

The MSME sector is a nursery of entrepreneurship, often driven by individual creativity and

innovation. This sector contributes 8 per cent of the country’s GDP, 45 per cent of the

manufactured output and 40 per cent of its exports. The MSMEs provide employment to

about 60 million persons through 26 million enterprises.

Programme focuses on imbibing increase in productivity and competitiveness in the clusters.

In a survey conducted by UNIDO, it is estimated that there are around 6400 clusters in India.

Out of these a total of 4259 clusters have been mapped. The typology of these

follows:

� Number of SME cluster: 1086

� Number of Handloom clusters: 491

� Number of Handicraft clusters : 2682

The following figure shows the zonal distribution of the SME clusters in India.

31%

28%

Zonal Distribution of Clusters



around 72 per cent. With the Textile Industry also being eligible for the Technological Up


existing industries upgraded with newer facilities. Therefore it is envisaged that the de

bstantially in the near future

Micro and Small Enterprises–Cluster Development Programme

CDP), Ministry of Micro, Small & Medium Enterprises


n. This sector contributes 8 per cent of the country’s GDP, 45 per cent of the


about 60 million persons through 26 million enterprises. The MSE Cluster Development

e focuses on imbibing increase in productivity and competitiveness in the clusters.


Out of these a total of 4259 clusters have been mapped. The typology of these

Number of SME cluster: 1086

Number of Handloom clusters: 491

Number of Handicraft clusters : 2682

The following figure shows the zonal distribution of the SME clusters in India.

14%

27%

28%

Zonal Distribution of Clusters


try also being eligible for the Technological Up-


it is envisaged that the demand

Cluster Development Programme

CDP), Ministry of Micro, Small & Medium Enterprises


n. This sector contributes 8 per cent of the country’s GDP, 45 per cent of the


The MSE Cluster Development

e focuses on imbibing increase in productivity and competitiveness in the clusters.


Out of these a total of 4259 clusters have been mapped. The typology of these clusters is as

East

West

South

North



The state of Uttar Pradesh leads in terms of maximum clusters in a state. The figure displays

the distribution of SME clusters in India. 80 per cent of the clusters are present in the

following states: Uttar Pradesh, Tamil Nadu, Gujarat, Maharashtra, Kerala, Andhra Pradesh,

Karnataka, Punjab, West Bengal and Madhya Pradesh.

The demand assessment of the Cluster Development Programme is carried out based on the

scope of activities of the scheme, which are as follows:

i. Diagnostic Study Reports

The Ministry of Micro, Small and Medium Enterprises has till date carried

out 470 Diagnostic Study Reports which means that only 43 per cent of the

clusters have been covered. There is a further requirement of Diagnostic

Study Reports to be prepared for 742 clusters.

0 50 100 150 200

Uttar Pradesh

Gujarat

Kerala

Karnataka

West Bengal

Rajasthan

Orissa

Bihar

Jammu & …

Himachal Pradesh

Tripura

Goa

Lakhsadweep

Nagaland

Number of Clusters

States

Statewise SME Clusters

80%



ii. Soft Intervention

In terms of Soft Interventions, a total of 307 clusters have been covered.

Another 824 clusters are still require Soft Interventions.

An

dh

ra …

Ass

am

Bih

ar

Ch

att

isg

arh

De

lhi

Go

a

Gu

jara

t

Ha

rya

na

Him

ach

al …

Jam

mu

& …

Jha

rkh

an

d

Ka

rna

tak

a

Ke

rala

Lakh

sad

we

ep

Ma

dh

ya

…

Ma

ha

rash

tra

Ma

nip

ur

Me

gh

ala

ya

Na

ga

lan

d

Od

ish

a

Po

nd

ich

err

y

Pu

nja

b

Ra

jast

ha

n

Ta

mil

Na

du

Tri

pu

ra

Utt

ar …

Utt

ara

kh

an

d

We

st B

en

ga

l

Demand for Diagnostic Study Report

Remaining

Completed

0 50 100 150 200

Andhra Pradesh

Bihar

Delhi

Gujarat

Himachal Pradesh

Jharkhand

Kerala

Madhya Pradesh

Manipur

Nagaland

Pondicherry

Rajasthan

Tripura

Uttarakhand

Number of Clusters

Demand for Soft Interventions

Completed

Remaining



iii. Common Facility Infrastructure

Only 132 clusters have been implemented by the Common Facility

Infrastructure component.

iv. Infrastructure Development and Up gradation

The Infrastructure Development and Up gradation component consist of

developing new infrastructure and up gradation of older infrastructure.

Under the Cluster Development Program, 124 clusters fall under new

infrastructure development and 60 clusters fall under upgradation of

existing infrastructure respectively.

0 50 100 150 200

Andhra Pradesh

Bihar

Delhi

Gujarat

Himachal …

Jharkhand

Kerala

Madhya Pradesh

Manipur

Nagaland

Pondicherry

Rajasthan

Tripura

Uttarakhand

Number of Clusters

Demand for Common Facility Infrastructure

Completed

Remaining





A total of 388 industrial clusters across 21 states in India have been identified by the

Department of Micro, Small and Medium Enterprises. The identified clusters encompass all

the sectors ranging from agricultural implements, electronics and electrical manufacturing,

leather, auto components etc. Out of these clusters, only 39 clusters have been brought under

the ambit of the MIIUS scheme during the Tenth and the Eleventh Five Year Plan. These

clusters can be further segregated based on the following indicators: Maximum Potential for

Technology Up gradation and Export Potentiality of the products. Ranking the clusters on

High, Medium and Low for the aforementioned indicators the demand assessment for this

scheme is carried out. The present analysis takes into account only the High and Medium

ranks for the indicators. The analysis shows that there are a total of 305 clusters covering 20

states across India where MIIUS can be further implemented. The following table lists out the

state-wise potential number of clusters.

0 50 100 150 200

Andhra Pradesh

Bihar

Delhi

Gujarat

Himachal Pradesh

Jharkhand

Kerala

Madhya Pradesh

Manipur

Nagaland

Pondicherry

Rajasthan

Tripura

Uttarakhand

Number of Clusters

Demand for Infrastructure Development and

Upgradation

New

Upgradation

Gap



0 10 20 30 40 50

Andhra Pradesh

Chattisgarh

Gujarat

Goa

Jammu & Kashmir

Kerala

Madhya Pradesh

Punjab

Tamil Nadu

Uttar Pradesh

Number of Clusters

Sta

tes

Demand For Modified Industrial Infrastructure

Up gradation Scheme

Clusters covered till

date under MIIUS

Clusters which has

received In-Principle

Approval

Number of

clusters(Unmet

demand)

States Number of

Clusters States

Number of

Clusters

Andhra Pradesh 26 Maharashtra 44

Bihar 3 Madhya Pradesh 9

Chattisgarh 2 Odisha 13

Delhi 14 Punjab 27

Gujarat 40 Rajasthan 18

Himachal Pradesh 1 Tamil Nadu 22

Goa 1 Uttaranchal 2

Haryana 15 Uttar Pradesh 30

Jammu & Kashmir 3 West Bengal 13

Karnataka 14 Kerala 8

Maharashtra 44

Total number of clusters = 305




Industries (MoFPI)

The rationale behind setting up food parks is that small and medium entrepreneurs find it

difficult to invest in capital intensive activities. Thus, as a strategy to develop the food

processing infrastructure, Ministry of Food Processing has been actively pursuing setting up

of food parks in different parts of the country. It is envisaged that in such parks common

facilities like cold chain, food testing and analysis laboratories, packaging centers, training

facilities will be housed for the entrepreneurs. Such schemes are designed to provide impetus

to the Indian food industry which is expected to touch Rs. 13, 50,000 crore by 2015. The food

processing industry can be basically divided into the following three categories: a)

Agriculture based b) Livestock based and c) Fisheries based. MFPS is expected to facilitate

the achievement of the Vision 2015 of Ministry of Food Processing Industries. The below

table provides us with an indicative snapshot of the Primary Processed Products and Value

Added Products as per the above three categories

Primary Processed Products Value Added Products

Ag

ricu

ltu

re Milled Grains, Spices

Beverages, Ready to eat/cook/drink, Bakery Products, Processed dry fruits

Fruits and Vegetables

Tea and Coffee

Sugar Confectionary

Edible Oil

Liv

esto

ck

Milk UHT milk, Milk Powder, Ice cream

Eggs, Meat Egg powder, Packaged Meat

Fis

her

ies

Processed aquatic foods

Vision 2015

To realize the vast potential of Indian agriculture by trebling the size of processed food

sector so as to enhance farmer income, generate employment opportunities, provide

choice to consumers at affordable price and contribute to overall national growth by

increasing the following:

A. The level of processing of perishables from 6% to 20%.

B. Value addition from 20% to 35%

C. Share in global food trade from 1.5% to 3%



It is forecasted that the market size for

processed foods will increase from Rs.

4, 60,000 crore to Rs. 13, 50,000 crore

(at 2003-04 prices) and the share of

value added products in the processed

food consumption will grow from 38

%( Rs. 1, 80,000 crore) to 58 %( Rs.7,

80,000 crore. 7While the Ministry of

Food Processing Industry (MoFPI) has

supported development of 54 Food

Parks in the country since the Eighth

Five Year Plan period, most of them

are yet to be operational. Against a physical target of 25 Parks during the 10th Plan, 18 Parks

have been sanctioned so far. Of these, only 8 Food Parks may be said to be operational. Even

those operational are facing problems of gross under-utilization, besides being unable to

attract entrepreneurs. Only 28 units are currently in operation in these 8 Parks. In the 11th

Five Year, against a physical target of 30 Mega Food Parks, only 15 have been sanctioned

and are under the stage of implementation. There has been a continuous demand from private

sector for participation in the Scheme. In 2008-10, the Ministry received 79 proposals (in two

phases) against the available slots of only 10 parks. Against the EOI in 2011-12, the MoFPI

received 63 proposals for setting up of Mega Food Parks where the available slots where only

15. This shows the demand and interest of private sector to invest in such projects. For the

12th Five Year Plan, the ministry has proposed to develop 50 Mega Mega Food Parks

7 http://www.dsir.gov.in/reports/isr1/Food%20Processing/6_5.pdf

2

39

10

15 30

50

0 10 20 30 40 50 60

8th Five Year Plan

9th Five Year Plan

10th Five Year Plan

11th Five Year Plan

12th Five Year Plan

Status of Food Processing Units under Food Park and Mega Food Park

Scheme in India

Food Parks already setup

Sanctioned Mega Food Parks

Proposed Mega Food Parks

Planned Mega Food Parks

9

4

21

34

1st Phase

2nd Phase

3rd Phase

Total

Projects Approved in Mega Food Park Scheme



(V) Scheme for Cold Chain, Valu


Poor cold storage infrastructure not only

affects the freshness and quality of

products, but also the price. Waste can

contribute to the doubling of fruit and

vegetable prices; while milk can cost 50

per cent higher. In India, due to low

awareness of food freshness, lower

quality fruits and vegetables end up being

consumed. Again, in the Scheme for Cold

Chain, Value Addition and Preservation

Infrastructure, MoFPI, every EOI has received a huge response from the private sector. In the

first EoI invited by the Ministry in 2011

private sector enterprises. Against another EOI in 2012

proposals against about 16 available slots (although the Ministry later approved 66 projects

out of those proposals after upscalation of the scheme considering the huge demand).

Recently, the Ministry has come out with another invitation for EOI for about 15 more co

chain projects under the scheme, against which 1

cold storage market has a multitude of players, with over 3,500 companies in the value

chain.13 Cold chain solution provider companies constitute 85 per cent of the

transportation services, such as refrigerated trucks (known as reefers), account for the

remaining 15 per cent. According to ASSOCHAM, during the period of 2009

chain industry in India is expected to grow at a CAGR of around 2

6400 crores. The National Horticulture Board (NHB) recommends that investments worth

INR 55074 crores in new cold storage capacity are needed by 2015

increasing production of fruits and vegetables. Under the

has approved 122 cold chain projects worth total investment of Rs. 2806 crores till 2014. This

works out to only 5% of the demand being met by this scheme in terms of monetary

investment. In 2010, The Directorate of Marketi

had mapped pan-India cold storage infrastructure availability. The study finds that there is



Scheme for Cold Chain, Value Addition and Preservation


Poor cold storage infrastructure not only

affects the freshness and quality of

products, but also the price. Waste can

contribute to the doubling of fruit and

able prices; while milk can cost 50

per cent higher. In India, due to low

awareness of food freshness, lower

quality fruits and vegetables end up being

Again, in the Scheme for Cold

Chain, Value Addition and Preservation

ery EOI has received a huge response from the private sector. In the

first EoI invited by the Ministry in 2011-12, the Ministry received 164 proposals from the

private sector enterprises. Against another EOI in 2012-13, the Ministry received 146

against about 16 available slots (although the Ministry later approved 66 projects


Recently, the Ministry has come out with another invitation for EOI for about 15 more co

chain projects under the scheme, against which 153 proposals have been received.


chain.13 Cold chain solution provider companies constitute 85 per cent of the market, while


remaining 15 per cent. According to ASSOCHAM, during the period of 2009-2017, the cold

chain industry in India is expected to grow at a CAGR of around 25.8 per cent to reach INR


INR 55074 crores in new cold storage capacity are needed by 2015–16 to keep up with the

increasing production of fruits and vegetables. Under the Cold Chain scheme, the ministry



investment. In 2010, The Directorate of Marketing and Inspection, Ministry of Agriculture

India cold storage infrastructure availability. The study finds that there is

23%

47%

23%

2% 5%

Production Distribution of Horticulture

Crops



ery EOI has received a huge response from the private sector. In the

12, the Ministry received 164 proposals from the

13, the Ministry received 146

against about 16 available slots (although the Ministry later approved 66 projects


Recently, the Ministry has come out with another invitation for EOI for about 15 more cold

53 proposals have been received. India’s


market, while


2017, the cold

5.8 per cent to reach INR


16 to keep up with the

Cold Chain scheme, the ministry



ng and Inspection, Ministry of Agriculture

India cold storage infrastructure availability. The study finds that there is

Production Distribution of Horticulture

FRUITS

VEGETABLES

FLOWERS

AROMATIC



currently 25 million tonnes8 of storage capacity across 23 states

production as per NHB data is around 2807 million tonnes

such situation, India ranks high in food wastage globally.

8 http://www.thehindu.com/business/Industry/private



of storage capacity across 23 states whereas the total horticulture

ata is around 2807 million tonnes. It is no wonder that in light of

such situation, India ranks high in food wastage globally.

Figures are in Million Metric Tonnes

http://www.thehindu.com/business/Industry/private-investments-needed-to-fill-cold-storage-facility-gap-mfp/article5321214.ece


whereas the total horticulture

It is no wonder that in light of

Figures are in Million Metric Tonnes

mfp/article5321214.ece





Textiles

According to a report developed by UNIDO in 2013 for the Department of Micro, Small and

Medium Enterprises reported that there are 2862 handicraft clusters in India. The following

states namely Uttar Pradesh, Odisha, West Bengal, Gujarat, Maharashtra, Madhya Pradesh,

Andhra Prades, Karnataka, Bihar and Rajasthan constitute for around 69 per cent of the total

such clusters in India.

Sl No State/UT Number of Handicraft Clusters

1 Uttar Pradesh 282

2 Odisha 271

3 West Bengal 245

4 Gujarat 199

5 Maharashtra 189

6 Madhya Pradesh 159

7 Andhra Pradesh 154

8 karnataka 137

9 Bihar 128

10 Rajasthan 120

Total 1884

Out of a reported 2 lakh artisans in India, Gujarat, Uttar Pradesh, Andhra Pradesh, Karnataka,

Kerala, Jammu and Kashmir, Odisha, West Bengal, Delhi and Assam constitute for 72 per

cent of the total artisans and 65 per cent of the total handicraft products produced. The

following table lists out the clusters/production centers along with the identified handicraft

identified by the Working Group, Ministry of Textiles report for the 12th Five Year Plan. For

the 12th Five Year Plan, the government has proposed Lucknow, Bareilly and Kutch for the

next set of Mega Clusters. The following table lists the identified major production centres

for various handicraft products.



State Cluster/Production Centers Identified Handicraft

Uttar Pradesh

Moradabad Art metal ware/ metal crafts

Farukabad Hand printed textiles

Saharanpur Wood craft

Bhadohi Carpet

Mirzapur Carpet

Agra Zari and Zardozi

Varanasi Zari and Zardozi

Bareilly Zari and Zardozi

Varanasi Lacquer craft

Agra Stone carving

Varanasi Stone carving

Rajasthan

Jaipur Hand printed textiles

Jaipur Carpets

Jodhpur Wood craft

Jaipur Hand printed textiles

Barmer Hand printed textiles

Jaipur Imitation jewellery

Jaipur Stone carving

Jaipur Tie& Dye/Batik

Jammu and Kashmir Srinagar Carpet

Anantnag Embriodery

Madhya

Pradesh Bagh Hand printed textiles

Andhra Pradesh Narsapur Lache and crochet goods

Pochampalli Tie& Dye/Batik

Delhi Delhi Imitation Jewellery

Karnataka Channapatna Lacquer craft

Chattisgarh Bastar Dhokra craft

Tamil Nadu Mahabalipuram Stone carving

Odisha Bhubaneshwar Stone carving



Puri Applique work

Puri Tie& Dye/Batik

Gujarat

Ahmedabad Applique work

Kutch Applique work

Surat Zari and Zardozi

Bhuj Tie& Dye/Batik

North Eastern Region

Assam Bamboo and Cane

Tripura Bamboo and Cane

Manipur Bamboo and Cane

Arunachal Pradesh Bamboo and Cane

West Bengal Bamboo and Cane

Kerala Bamboo and Cane

Further analyzing the identified production centers based on the following indicators: a)

Turnover of the Clusters b) Total Export Value and C) Artisans Involved, it can be seen that

Saharanpur and Agra has the potential to come up as Mega Clusters in the immediate future.

The combined turnover of these two clusters is Rs 600 lakhs, out of which 50 per cent comes

from exports indicating good export market for their products. The total number of artisans

involved for these two clusters is 80,000.

Cluster/Production

Centers

State Craft Turnover

of the

Clusters

Total Export

Value

Artisans

Involved

Saharanpur Uttar

Pradesh

Wood

craft 400 200 50,000

Agra Uttar

Pradesh

Stone

carving 200 100 30,000





The Scheme for Development of AYUSH Clusters was designed to promote the the

Ayurveda, Yoga and Naturopathy, Unani, Sidha & Homeopathy (AYUSH) industry which

represents the traditional form of Indian medicine and has been part of India’s socio- cultural

heritage. The estimated global herbal industry is valued over US$ 60 billion mainly in the

form of pharmaceuticals (US$ 40 billion), spices and herbs (US$ 5.9 billion), natural

cosmetics (US$ 7 billion) and essential oil (US$ 4 billion) and it is growing at the pace of 7%

per year and is expected to reach US$ 5 trillion by the year 2050. During the last four Five

Year Plans, total export of herbal products from India had increased from about Rs. 581 crore

in 1995-96 to about Rs. 1713 crore in 2010-11 showing a positive balance of trade despite the

fact that overall balance of trade has been negative since 1996-97. Despite a steady

performance of MAPs sector over the years, Indian share in the world’s herbal export is

insignificant comprising of around 1.6% and largely 2/3rd of it in the form of raw herbs9. This

industry has approximately an annual turnover of Rs. 5000 Crore and is essentially dominated

by micro, small and medium enterprises (MSMEs) which account for more than 80% of the

enterprises that are located in identifiable geographical clusters. Till now the government has

promoted the following 9 AYUSH clusters:

SL No State/UT AYUSH SPV

1 Andhra Pradesh Lepakshi Ayush Park Private Limited

2 Karnataka Ayurpark Health Care Limited,

3 Kerala CARE Keralam

4 Maharashtra Maharashtra Ayurved Center Pvt. Ltd

5 Maharashtra Konkan Ayur Pharma Pvt. Ltd.

6 Odisha Rushikulya Ayurvedic Cluster pvt Ltd.

7 Punjab Herbal Health Research Consortium Pvt. Ltd.

8 Rajasthan M/s Ayushraj Enterprises Pvt. Ltd.

9 Tamil Nadu Traditional Ayurveda Cluster of Tamilnadu

9 Vision 2050, Department of Medicinal and Aromatic Plants Research

“In a vast country like India, there should be at least one AYUSH industry cluster in each

state”.



The Plan outlay for Department of AYUSH for 2014-15 is Rs. 1069.00 crore10.The system

wise details of manufacturing units in India in India as per the Department of AYUSH are as

follows11:

System Number of Units

Ayurveda 7494

Unani 414

Siddha 338

Homeopathy 398

Total 8644

Among the four industries, Ayurveda has the largest number of manufacturing units

constituting 86 per cent of the total AYUSH industry. The total production of aromatic and

medicinal plants in India for 2013-14 is 904,000 metric tonnes. The top 10 production centers

for aromatic and medicinal plants are as follows: a) Madhya Pradesh b) Tamil Nadu c)

Rajasthan d) Arunachal Pradesh e) Chattisgarh, f) Karnataka g) Uttar Pradesh h) Andhra

Pradesh i) Punjab and J) Haryana. The production data12 of these states are as follows:

States Total production of Aromatic and Medicinal Plants('000

MTs)

Madhya Pradesh 404.6

Tamil Nadu 162.12

Rajasthan 133.29

Arunachal Pradesh 109.18

Chhattisgarh 50.25

Karnataka 21.66

Uttar Pradesh 13.4

Andhra Pradesh 4.52

Punjab 1.67

Haryana 1.14

TOTAL 901.83 (97% of total production in India)

AYUSH Clusters

10 Expenditure Budget Vol.I, 2014-2015 11 http://www.indianmedicine.nic.in/showfile.asp?lid=44 12

Indiastat, accessed on 13-august-2014



The supply chain in these production centres can be categorized into the following13: a)

Number of Growers b) Number of Traders c) Number of Manufacturers and d) Number of

Exporters14.Of these four categories, traders constitute 45% of the total supply chain agents

indicating that most of the products are traded in non-processed form. Estimating cost of raw

materials at Rs 41.4015 per kg, it can be observed that Madhya Pradesh provides an

immediate need of establishing an AYUSH cluster followed by Arunachal Pradesh,

Chattisgarh, Uttar Pradesh and Haryana respectively.

States

Total production of

Aromatic and Medicinal

Plants('000 MTs)

Estimated

Market Size( Rs.

Crore)

Share of Total

Industry in

India

Madhya Pradesh 404.6 1675.04 34%

Arunachal Pradesh 109.18 452.01 9%

Chhattisgarh 50.25 208.04 4%

Uttar Pradesh 13.4 55.48 1%

Haryana 1.14 4.72 0.09%



The Indian Leather industry is spread over the formal as well as informal sectors and

produces a wide range of products from raw hides to fashionable shoes. The industry

comprises of firms in all capacities starting from small artisans to prominent global players

and employs 2.5 million persons. A large part nearly 60-65% of the production is in the

small and unorganized sector. Leather Industry is amongst top eight export earners for India.

India ranks first among major livestock holding countries in the world and thus has a rich

endowment of raw materials in terms of the cattle population. India is endowed with 10% of

the world raw material and Indian Leather export constitutes about 5%16 of the world trade.

It has the capacity to fulfill 10% of the global leather requirement.

Leather Goods & Accessories 2007 2008 2009 2010 2011

World Import 16388 18117 14376 17059 22216

13 Organized sector 14 http://www.nmpb.nic.in/index1.php?level=0&linkid=92&lid=694 15 Calculation: As per Vision 2050 document, total industry size is Rs 5000 crore with 2/3rd of it in raw form which equates to around Rs 3750 crore. The total production of MAP is 904.94 ‘000 metric tonnes, which results in Rs 41.40 per kg. 16 http://www.leatherindia.org/products/leather_goods_23-4-13.asp



India's Export 800 873 757 855 1089

% Share Of India 4.88% 4.82% 5.26% 5.01% 4.90%

Values are in US $ Millions

In 2012-13 leather exports increased by 17%, to Rs 350 crore up from Rs 300 crore in 2011-

12. For 2013-14, leather exports are expected to have a 15 per cent export growth. The

Department of Micro, Medium and Small Enterprises has listed 14 leather clusters in 9 states.

The below table shows the potential leather clusters17 based on export potential:

Sl.

No

.

State District Export

Potential

No. of Units

in the Cluster Employment

Annual

Turnover

1 Andhra Pradesh

Hyderabad High NA NA NA

2 Delhi South Delhi High

100-500 NA NA

3 Gujarat Ahmedabad High

100-500 Less than or

equal to 1000 0-10 Crore

4 Karnataka Bangalore High

NA NA 100-1000 Crore

5 Punjab Jalandhar High

100-500 1,00-10,000 10-100 Crore

6 Punjab Jalandhar High



7 Tamil Nadu Chennai High 500-1000 NA More than 1000

Crore

8 Tamil Nadu Vellore High

500-1000 NA

9 Uttar Pradesh

Agra High

1000-10000 10,000 to 1,00,000

100-100 Crore

10 Uttar Pradesh

Allahabad High

NA NA

11 Uttar Pradesh

Kanpur High

100-500 NA More than 1000

Crore

12 West Bengal

Kolkata High



13 Karnataka Raichur Medium NA NA 0-10 Crore

14 Maharashtra Satara Medium

1000-10000 10,000-1,00,000

10-100 Crore

17 http://www.dcmsme.gov.in/clusters/clus/smelist.htm#clus




The Indian Plastics Industry is

spread across the country,

employing about 4 million people

and over 2,000 exporters. It operates

more than 30,000 processing units,

of which 85 per cent to 90 per cent

are small and medium enterprises

(SMEs). India has emerged as one of

the most promising exporters of

plastics among developing

countries. In 2011–12, exports of Indian plastics stood at US$ 7.19 billion. In 2012–13,

exports of Indian plastics stood at over US$ 7.2 billion, and are expected to reach the US$ 10

billion by 2015-16. India's plastic exports are increasing at a high rate, as such, during May

2014 to June 2014, India exported plastic products worth US$ 971,273, followed by Saudi

Arabia and United States with exports valued at US$ 200,316 and US$ 174,471 respectively.

Indian plastics exports have grown at a rate of 19.9 per cent since 2007–08. Products from the

Indian plastics industry are exported to more than 150 countries; major trading partners being

China, the US, the UAE, Turkey, Italy, the UK, Indonesia, Germany, Vietnam, Bangladesh,

Nigeria, Pakistan, South Africa, Brazil, Singapore, Saudi Arabia, Nepal, Egypt, Sri Lanka

and the Netherlands18. With such a promising future for the industry, the Department of

Chemicals and Petrochemicals under the Ministry of Chemicals and Fertilizers sought to

provide impetus to the sector through the Plastic Park Scheme. Through this scheme, it

envisioned to bring the SMEs involved in the plastic sector with the much needed

infrastructural support. AIPMA (All India Plastics Manufacturers Association) envisages an

additional investment of Rs 25,000 crore for the industry in the coming years. According to

AIPMA officials, the country's plastics consumption is expected to grow to 20 million tonnes

by 2020 from the present 8 million tonnes. Even though exports of plastic and plastic

products have been growing at a brisk rate, the trade of balance for plastic and plastic

products has not been in India’s favour in the past19. The primary reason behind this is lack of

technological advancements in this sector. The industry representatives have been making

18 http://www.ibef.org/exports/plastic-industry-india.aspx 19 http://chemicals.nic.in/petro1.htm

36% 33% 34% 40%

64% 67% 66% 60%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2008-09 2009-10 2010-11 2011-12

Year Wise Comparison of the Plastic Industry

Import

Export



requests for the sector to be brought under the ambit of TUF (Technology Up gradation

Fund). Unless the industry is nurtured with such schemes, it is very unlikely that standalone

Plastic Park Schemes will encourage the industry in terms of investments and expansion20.




The Indian Electronic System Design and Manufacturing industry is expected to grow at a

CAGR of 9.9% to reach US$94.2 billion by 201521.According to the study, products like

mobile phones, television and computing device alone account for 60% of the overall

electronics consumption. Currently a majority of the electronic products (65%) are imported

in the country, and the remaining 35% of the products that are manufactured in India belong

to "Low Value Added Manufacturing". Out of the 25 product categories, mobile phones lead

the demand with 38.85 per cent share, followed by FPD TV at 7.91 per cent, notebooks at

5.54 per cent and desktops at 4.39 per cent. Buoyed by the IT Industry, where India remains a

market leader globally, the hardware sector is also expected to rise in India. The government

in a bid to push the electronics manufacturing sector has identified seven Greenfield

Electronic Manufacturing Clusters to be set up. It is envisaged that this sector will employ

close to 28 million persons. The identified clusters are identified at Bhopal, Bhubaneswar,

Hyderabad, Maheshwaram, Bhiwadi, Jabalpur, Hosur and Kakhanada. Further to this,

recently the Department of Electronics and Information Technology has identified 5 clusters

in 3 states for Brownfield Electronic Manufacturing Clusters under the Modified Special

Incentive package Scheme22. The identified clusters are shown in the following table:

State Brownfield Electronics Manufacturing Cluster

for MSIPS, scheme Cluster-ID

Karnataka Bengaluru, Bengaluru Rural, and Tumkur KK-I

Mysore KK-2

Madhya Pradesh Dewas, Indore, &Dhar MP-I

Bhopal MP-2

20 http://zeenews.india.com/news/eco-news/set-up-plastic-parks-provide-technology-upgrade-fund-group_894219.html 21 http://articles.economictimes.indiatimes.com/2014-01-13/news/46149784_1_iesa-warehousing-zone-mobile-phones 22 http://www.efytimes.com/e1/creativenews.asp?edid=102854



Uttar Pradesh Noida - Greater Noida UP-I

However the Government has put an upper limit in the Research and Development

component as 50% of the total project cost which is very surprising given that the electronics

industry is highly research oriented. It would not be surprising if this deters potential

investors from participating in this scheme notwithstanding the potential. This scheme will be

open for five years from the date of notification i.e. 22nd October 2012 until notified

otherwise.



ChapterChapterChapterChapter----7777: Public Private Partnership: Public Private Partnership: Public Private Partnership: Public Private Partnerships in s in s in s in

IndiaIndiaIndiaIndia

“The Twelfth Plan must continue the thrust on accelerating the pace of investment in

infrastructure, as this is critical for sustaining and accelerating growth. Public investment in

infrastructure will have to bear a large part of the infrastructure needs in backward and

remote areas to improve connectivity and

expand the much needed public services. Since

resource constraints will continue to limit public

investment in infrastructure in other areas, PPP-

based development needs to be encouraged

wherever feasible”.

- Approach to the 12th Five Year Plan,

Planning Commission, GoI

The Government of India has clearly assimilated

PPP as a significant part of its policy framework

for infrastructure development in the country.

There has also been considerable progress in this

direction with share of PPP projects in total

infrastructure investments showing a rising trend

PPP approach in India, as elsewhere in the

world, has been guided by the belief that it not only brings much needed financial resources

from private sector but also ensures greater efficiency in provision of public services.

However, the PPP infrastructure investments in the country are largely dominated by roads

and ports in the country. The shares of roads and ports, in total value of project contracts

awarded and under implementation of Rs. 293,367 crore (pppinindia.com), are around 80 per

cent and 14 per cent respectively. Thus, there remains a large untapped potential for PPP

projects across the country

It may be noted that the above figures are from PPP database of the Ministry of Finance,

Government of India and all projects have to meet prescribed guidelines to qualify as a PPP

project which would then also become eligible for Viability Gap Funding

Definition: “Public Private

Partnership” or “PPP” means an

arrangement between the Appropriate

Government or a statutory entity or a

government-owned entity or Central

Public Sector Undertaking on one side

and a private entity on the other, for the

provision of public assets and/or public

services, through investments being

made and/or management being

undertaken by the private entity, for a

specified period of time, where there is

well defined allocation of risk between

the private entity and the public entity

and the private entity receives

performance linked payments that

conform (or are benchmarked) to

specified and pre-determined

performance standards, measurable by

the public entity or its representative.



(I) Viability Gap Funding Scheme (VGF)

The financial assistance available under VGF of Ministry of Finance, Government of India is

normally in the form of a capital grant at the stage of project construction. The financial

assistance is equivalent to the lowest bid for capital subsidy, but subject to a maximum of 20

per cent of the total project cost. In addition, the sponsoring Ministry/ State Government/

statutory entity may propose to provide assistance up to a further 20 per cent of the total

project cost

(1) Sectors Eligible for VGF

a. Roads and bridges, railways, seaports, airports, inland waterways;

b. Power;

c. Urban transport, water supply, sewerage, solid waste management and other physical

infrastructure in urban areas;

d. Infrastructure projects in Special Economic Zones and internal infrastructure in

National Investment and Manufacturing Zones;

e. International convention centers and other tourism infrastructure projects;

f. Capital investment in the creation of modern storage capacity including cold chains

and post-harvest storage;

g. Education, health and skill development, without annuity provision;

h. Oil/Gas/Liquefied Natural Gas (LNG) storage facility (includes city gas distribution

network);

i. Oil and Gas pipelines (includes city gas distribution network);

j. Irrigation (dams, channels, embankments, etc);

Roads82%

Housing3%

Ports12%

Sports2%

Civil aviation1% Tourism and

Railways1% each



k. Telecommunication (Fixed Network) (includes optic fibre/ wire/ cable networks

which provide broadband /internet);

l. Telecommunication towers;

m. Terminal markets;

n. Common infrastructure in agriculture markets; and

o. Soil testing laboratories.

(2) Eligibility Criteria for VGF

In addition, to be eligible for consideration under VGF, a project needs to meet the following

criteria:

a. The PPP project has to be implemented, i.e. developed, financed, constructed,

maintained and operated for the project term by a private sector company to be

selected by the Government or a statutory entity through a transparent and

open competitive bidding process. This is thus most commonly understood

PPP model viz. Build-Operate-Transfer (BOT) or its variants.

b. The criterion for bidding is the amount of viability gap funding required by the

private sector company for implementing the project where all other

parameters are comparable.

c. The project should provide a service against payment of a pre-determined

tariff or user charge.

d. The concerned sponsoring entity has to certify with reasons the following: The

tariff /user charge cannot be increased to eliminate or reduce the viability gap

of the PPP project. The project term cannot be increased for reducing the

viability gap. The capital costs are reasonable and are based on standards and

specifications normally applicable to such projects where the capital cost

cannot be further restricted for reducing the viability gap.

e. Finally, the Scheme will apply only if the contract/concession is awarded in

favour of a private sector company in which 51 percent or more of the

subscribed and paid up equity is owned and controlled by a private entity.



(II) PPP Variants

It needs to be appreciated that the PPP offers a range of options and is much more than a

BOT model. The PPP options may range from concessions and joint ventures to service

contracts and O&M contracts. In fact, service contracts and O&M contracts are considered to

be first steps in involving private sector as these may be implemented quickly

(1) BOT vs BOT -Annuity models

BOT model has got two main approaches to handle traffic/market risk. Under the toll-based

BOT projects, traffic/market risk is borne by the private operators.

Under this model, capital subsidy may be provided to selected bidder for meeting the

projected “viability gap” during construction phase. An important variant of this approach is

“shadow tolling”, wherein private partners do not collect tolls from the road users but are

exposed to traffic risks, as they are paid on the basis of the volume of actual traffic. This

model has been found attractive due to provision of subsidy during construction phase. In

fact, as mentioned earlier, VGF which is the main scheme providing government support to

PPP projects has provision for providing capital subsidy normally during construction phase.

On the other hand, the private bidder remains exposed to traffic/ market risk under this model

which may make it unattractive for projects which are seen to have large market risks

Under BOT- Annuity Model though, the sponsoring entity (government or its agency)

absorbs the traffic risk and the private operator is paid for making the specified level of

infrastructure/service available regardless of the extent of traffic/market, these are also known

as “availability based” projects. This model has thus been found acceptable for NHAI

projects for highways which assures private operators the regular “annuity” payments over

project period. Of course, in this case, private operators may need to arrange for large capital

funds for completing the project which has its own cost implications



(2) SPV Model

Large sized and complex PPP projects are often developed through an SPV route, wherein a

project SPV is incorporated and it takes the responsibilities of acquiring land and other

statutory and environmental clearances. The SPV, along with the project, is then bid out

through a transparent process

There are other variants possible of this model which may though vary from traditional PPP

approach. For example, it may be envisaged to invite private operators for participation in the

equity structure of the SPV along with the government agency. The equity being offered to

private operator may be either majority share (51 % or more) or minority share (49 % or

less), depending on the nature of the project and decision of the concerned government

agency in this regard. The selected private operator shall also be given responsibility of

PPP Models supported by the Government

User-Fee Based BOT models - Medium to large scale PPPs have been awarded mainly in the energy and transport sub-sectors (roads, ports and airports). Although there are variations in approaches, over the years the PPP model has been veering towards competitively bid concessions where costs are recovered mainly through user charges (in some cases partly through VGF from the government) Annuity Based BOT models – In sectors/projects not amenable for sizeable cost recovery through user charges, owing to socio-political-affordability considerations, such as in rural, urban, health and education sectors, the government harnesses private sector efficiencies through contracts based on availability/performance payments. Implementing “annuity model” will require necessary framework conditions, such as payment guarantee mechanism by means of making available multi-year budgetary support, a dedicated fund, letter of credit etc. Government may consider setting-up a separate window of assistance for encouraging annuity-based PPP projects. A variant of this approach could be to make a larger upfront payment (say 40% of project cost) during the construction period Performance Based Management/ Maintenance contracts – In an environment of constrained economic resources, PPP that improves efficiency will be all the more relevant. PPP models such as performance based management/maintenance contracts are encouraged. Sectors amenable for such models include water supply, sanitation, solid waste management, road maintenance etc Modified Design-Build (Turnkey) Contracts: In traditional Design-Build (DB) contract, private contractor is engaged for a fixed-fee payment on completion. The primary benefits of DB contracts include time and cost savings, efficient risk-sharing and improved quality. Government may consider a “Turnkey DB” approach with the payments linked to achievement of tangible intermediate construction milestones (instead of lump-sum payment on completion) and short period maintenance / repair responsibilities. Penalties/incentives for delays/early completion and performance guarantee (warranty) from private partner may also be incorporated. Subsequently, as the market sentiment turns around these projects could be offered to private sector through operation-maintenance



O&M of the project under this model

(III) Capital Grant vs VGF

The Government of India has thus broadly supported the development of infrastructure

projects on a PPP basis through three instruments:

(a) Viability Gap Funding

(b) Annuity Payments

(c) Provision of Capital Grants as a percentage of projects

Given the wide array of contractual frameworks that cover infrastructure projects, variants of

the above have been adopted to support infrastructure development. The Cluster

Development approach for creating common industry infrastructure and facilities has though

been different, largely based on capital grant, taking into consideration uniqueness of the

challenges associated with MSME sector. For appreciation of the reasons for adoption of a

different approach, it may be considered necessary that the difference between a stand-alone

infrastructure project and a cluster based approach for creating common facilities, aimed at

developing competitiveness of MSME industry verticals, is understood:

(a) In a stand-alone infrastructure project, Government typically enters into a long

term Concession Agreement with the provider of the service, on the basis of a pre-

determined tariff structure for that service. A common infrastructure project

though does not conform to a singular definition but rests on multiple

stakeholders organized around a business vertical, to make the cluster as a whole

more competitive. Thus, in a cluster, the singular effort is to enhance

competitiveness by encouraging each member unit to evolve over the medium to

long term, in terms of skill, technology, products and services, etc

(b) In a stand-alone infrastructure project, levels of services are typically determined

for the entire duration of the Concession. In a Cluster based approach, the focus is

to organize the member units of a cluster to evolve standards in an organized

fashion to meet the challenges of a global marketplace. As a result, there is no ab

initio specificity on project parameters

(c) As a result of the foregoing, unlike in a stand-alone infrastructure project, the

establishment of common industry infrastructure assets and/or levels of services



are focused on the overall competitiveness of the clusters in a global environment.

In the absence of a uni-variant parameter, such as rate of return on investment, the

determination of viability gap would be difficult to establish ab-initio

(d) Unlike in a stand-alone infrastructure project, therefore, common infrastructure

projects also demand a great deal of effort to be devoted to building capacity.

The capacity building efforts commence when efforts are made to agglomerate a

critical mass of MSME entrepreneurs to participate in a cluster to the

establishment of their businesses in the clusters, choice of technology, building

market linkages for the clusters, establishing inter-se working relationships

between member units, arranging financing including working capital support,

accessing and providing infrastructure, establishing common non-infrastructure

utilities to support the cluster’s operations, etc. In sectors such as food

processing, successful clustering would also depend critically on the establishment

of suitable backward and forward linkages that go well beyond the creation of

infrastructure-centric assets

(e) Finally, it may also be noted that clusters are, at least in part, being made to

overcome deficiencies in the provision of public services which should have

ordinarily been made available to support such activities

In view of the foregoing, the government agencies have adopted financial assistance in form

of a capital grant, as a percentage of project cost, administratively more efficient and

effective in supporting creation of common industry infrastructure projects. In providing

grant to such projects, Government agencies have established necessary conditions that need

to be available before the grant is released



ChapterChapterChapterChapter----8888:::: Existing Legal and Regulatory Existing Legal and Regulatory Existing Legal and Regulatory Existing Legal and Regulatory

FFFFramework for PPP Projects ramework for PPP Projects ramework for PPP Projects ramework for PPP Projects

As PPP projects entrust responsibility of providing public assets and/or public services to

private sector entities which are provided public funds and other concessions for this purpose,

these projects have always been under close scrutiny of both policymakers and public at

large. The Draft National Public Private Partnership Policy, in the process of finalization by

the Ministry of Finance, Government of India, therefore stresses need for a clear legislative

and regulatory framework for PPP projects

The said Draft National PPP Policy, in this context, highlights following imperatives:

(a) Need for a transparent and objective process for selection of projects taking into

consideration concessionaire (private sector) concerns about ‘Value for Money’

and welfare consideration even as process design must be consistent with the

governing framework for public procurement;

(b) Clearly defined approval, compliance and performance monitoring jurisdiction;

(c) Clear definition of role, responsibility and rights of various parties in the

governing instruments including the scope of public service, service standards,

pricing, and scope of governmental intervention or assistance ;

(d) Participation of private parties in ownership and/or management of public assets

and/or delivery of public utility services;

(e) Vesting in such private party, the power to –

a. Collect, retain and appropriate revenue to meet reasonable expenses

incurred in implementation of the PPP project including a pre-

determined/agreed return on the funds employed; and

b. Seek revision of the charges and/or collection in terms of the concession

agreement, in order to facilitate business planning and financing.

(f) Role of the Concessionaire in maintaining and managing the PPP asset/services

and in controlling access to and usage of the infrastructure facility; and



(g) Scope of bankability and securitization of the Concession, Project Assets and

revenue (including assignability) so that the Concessionaire is in a position to

avail affordable debt finance by securing lenders.

The size and complexity of PPP projects require a very detailed and robust legal framework

which cover the entire project life cycle, starting from the stage of selection of the

project/beneficiary itself, for which there are prescribed guidelines for inviting proposals and

bidding process. Various stages of a PPP project and prescribed legal and regulatory

framework are given as follows:

(I) Procurement stage

The procurement and award of a PPP project are often a complex process. It is required that

“transparent, accountable, non-discriminatory, competitive and timely” procurement

processes are followed so as to encourage maximum participation by private sector and to

imbibe public confidence in the procedure

It has been prescribed that the bid documents used for procurement of private sector entities

may comprise of one or more of expressions of interest, request for qualifications, and

request for proposals. It has been suggested that technical proposals may also be invited,

depending on the complexity of a project, to assess the ability of the private entity to deliver

and appreciate desired outcomes. The financial proposals are prescribed to be ideally in the

form of a single objective parameter. The bid process and the model bidding documents viz.,

model Request for Qualification (RFQ) and model Request for Proposal (RFP) for PPP

projects in infrastructure sector, are prescribed by the government through notifications

issued from time to time

The Draft Contract Agreements or Concession Agreements, containing provisions on the

roles and obligations of the parties (the Contracting or Concessioning Authority and the

Concessionaire respectively), performance standards and monitoring arrangements, reporting

requirements, penalty conditions, force majeure conditions, dispute resolution mechanism

and termination arrangements, are also to be provided to the prospective bidders as part of the

bid documents

All the implementing agencies are required to observe the prescribed process or take

necessary approvals of the competent authority on the process proposed to be undertaken,

prior to commencement of the bid process. It has also been provided that a web based market



places, including e-tendering and auction may be promoted based on the project requirements

to promote wider participation and transparency in the process

(II) Revenue Sharing or Revenue Support Mechanisms

The procurement process may be said to start with the Contracting Authority getting a

Feasibility Study done for the project and then taking a decision, based on the Study, whether

to provide for revenue sharing and/or revenue support mechanisms or a combination thereof

within the Concession Agreement for the PPP Project. It is expected that the Contracting

Authority would take a decision considering monopoly nature of the public service being

provided by the Concessionaire under a PPP Project. It is also expected that the revenue

sharing or revenue support mechanism does not curtail private efficiency or compensate the

Concessionaire for risks allocated to the Concessionaire under the Concession Agreement. It

is further expected that in case of a monopoly in the provision of the public service, the

Concessionaire does not enjoy super-normal profits and at the same time does not suffer due

to unforeseen revenue-side risks

(III) Request for Qualification

Once a decision has been made on the kind of support to be provided under a project, it may

be followed by Invitation for Expression of Interest (EoI) or Request for Qualification (RFQ).

A RFQ document normally contains following:

(a) Description of the PPP Project, the estimated project cost and the project

structure;

(b) Description and schedule of the Tender Proceedings;

(c) Conditions of eligibility of Applicants, information sought from Applicants for

qualification and the form and procedure of the Application;

(d) Description of the parameters and method of evaluating qualification of

Applicants, the objective of the evaluation should be to identify Qualified

Applicants that have the requisite capability to take up the PPP Project; and

(e) Criteria or conditions, if any, for the disqualification of Applicants, such as,

Conflict of Interest, national security and other relevant considerations



(IV) Request for Proposal

The completion of RFQ process should result in shortlisting/selection of eligible bidders who

would be requested now to submit their proposals through a RFP document. A RFP

document should normally contain following:

(a) Feasibility Report/ Project Information Memorandum: This is designed to provide

sufficient information to Bidders to help them evaluate the PPP Project and

estimate their Final Offer. This Report may contain, inter-alia, project objectives

and rationale, site details, role of the government agencies and other stakeholders,

project scope and output specifications;

(b) Instruction to Bidders: This component gives description of Bid submission and

evaluation and should include all procedures, terms and conditions which would

be followed by the Bidders for submission of their Bids and the Contracting

Authority in accepting and evaluating the Bids;

(c) Draft Concession Agreement: This may be said to form core of the PPP structure

and governs the contractual relations between the Concessionaire (Preferred or

Selected Bidder) and the Contracting Authority. The draft Concession Agreement

is to contain, inter-alia, rights and obligations of both the parties, payment terms,

performance obligations, defaults and their consequences, events of termination

and other ancillary clauses. For some sectors, Model Concession Agreements have

been notified, which would need to be used by the Contracting Authority. In case

Model Concession Agreements are not available for a particular sector, existing

Model Agreements may be customized to the project requirements

(V) Evaluation Criteria

To ensure transparency in selection process, the evaluation criteria are already given in RFP

documents. It is required that evaluation criteria would be fully objective and the Contracting

Authority would select a Preferred Bidder solely on the basis of highest or the lowest Final

Offer, as specified in the RFP. It is also important to ensure that RFP clearly and specifically

define the form and content of the Final Offer and state that Preferred Bidder would be

selected on the basis of the most advantageous Final Offer



The criterion specified in the RFP would depend on the nature of a PPP project and Final

Offer may be submitted as: grant sought, expected revenue/annuity, tariff/shadow toll,

present value of lifecycle cost, period of the concession, upfront premium, equity stake,

extent/share of subsidized facilities to the Contracting Authority, revenue share etc.

(VI) Quality and Cost Based Selection (QCBS)

QCBS is one of the procurement methods, often used in the competitive selection for

specialized services, which takes into account the quality of the proposal (technical proposal)

as well as cost of the services (financial proposal) in the selection of the successful firm. Cost

as a factor of selection is to be used judiciously. The weight for the “cost” may normally be

20%, thus the weight for the “technical” would be 80%. However, the relative weight to be

given to the quality and cost is to be determined for each case depending on the nature of the

assignment

(a) The evaluation of each technical proposal may be done taking into account several

criteria such as relevant experience, quality of the methodology proposed,

qualifications of the key staff proposed etc. Each criterion is marked on a scale of

1 to 100. Then the marks are to be weighted to become scores

(b) The evaluation of the proposals is to be carried out in two stages: first the quality,

and then the cost. The total score is obtained by weighting and adding the

technical and financial scores which would determine the overall ranking of the

proposals. This method is considered normally appropriate when scope of work

can be precisely defined and when the TOR is well specified and clear

(VII) Formation of Tender Evaluation Committee/ Appointment of

Independent Monitor

Under PPP rules, the evaluation process needs to be independent and transparent and so the

Contracting Authority is required to not only form a Tender Evaluation Committee for

evaluation of proposals/responses but also appoint Independent Monitor to oversee the

process. The Independent Monitor is expected to monitor and record the tender proceedings,

review all documentation and to submit an independent report to the Approving Authority to

verify that activities have been conducted as per prescribed Rules and document deviations or



exceptions, if any. However, it is also provided that advice by the Independent Monitor

would not be binding on the Approving Authority

(VIII) Appointment and role of Independent Engineer

Once the tender process is complete and the Concession Agreement has been signed, it

becomes critical to ensure that project is implemented, as per prescribed objective and

specifications. The PPP infrastructure projects involve large scale of construction works

which need close monitoring. The operations of the project also need to comply with given

specifications to achieve defined outcomes. It is required, therefore, that the Contracting

Authority appoints an Independent Engineer which would have responsibility of supervising

the Concession Agreement. The responsibilities of an Independent Engineer, inter-alia,

include, following:

(a) Reviewing, inspecting and monitoring of construction works, examining the

designs and drawings and conducting tests and issuing completion certificates

during the construction period;

(b) Reviewing and inspecting the operations and maintenance arrangements, and

monitoring compliance with the performance and maintenance standards, during

the operations period;

(c) Identifying delays and lapses that require action on part of the Contracting

Authority for enforcing the agreement terms;

(d) Determining the reasonableness of costs for any works or services, as required

under the Concession Agreement;

(e) Determining the period or extension thereof, for performing any duty or

obligations, as required under the PPP or Concession Agreement

(IX) Role of Lead Financial Institution

Infrastructure PPP projects also require close monitoring of fund flows and the

Concessionaire is required to identify a financial institution which would act as the Lead

Financial Institution for the project. This Institution is expected to submit periodical report on

financial progress and statement of debt and equity contribution, and any other relevant

financial information, as required. Such reports are to be submitted at least every six month

during the construction period as applicable and annually till the operation period. Lead



Financial Institution is also required to inform the Contracting Authority at the earliest of any

payment delays by the Concessionaire to the lenders or if the Lead Financial Institution

comes to know of any financial irregularities by the Concessionaire

(X) Certified Accounts

During the subsistence of Concession Agreement, the Concessionaire is also expected to

maintain all documents and supporting evidences for its financial statements including

agreements and documents with respect to all capital and debt raised by the Concessionaire,

capital and revenue expenses towards the Project, component-wise information and details of

traffic/volume, tariffs charged and the amount of rates received. The Concessionaire is to

submit to the Contracting or Concessioning Authority periodical financial statements, duly

certified by its Statutory Auditors

(XI) Escrow Account

The mechanism of escrow account is to further ensure capturing of project fund flows in an

independent and transparent manner. The Concessionaire is therefore required to maintain an

escrow account with a bank approved by the Lender(s) during the subsistence of Concession

Agreement and enter into an agreement with such bank to ensure that all proceeds for

financing the project and all revenues and other receipts arising from the project are deposited

into such escrow account

The withdrawals and appropriations during the Concession Period, from the escrow account

may be done normally in the following order of priority:

(a) for all taxes due and payable by the Concessionaire;

(b) all construction/implementation expenses relating to the project, subject to limits

if any set out under the Financing Documents;

(c) all expenses relating to operations and management of the project, subject to

limits if any set out under the Financing Documents;

(d) towards its debt service obligations under the Financing Documents ;

(e) towards payment of Royalty and other sums payable to the Contracting Authority

and liquidated damages, if any;



(f) towards any reserve requirements in accordance with the Financing Documents;

The Concessionaire would be at liberty to withdraw any sums outstanding in the escrow

account after all the aforesaid payments due in any Quarter or other specified period of time,

have been made and/or adequate reserves have been created in respect thereof for that

Quarter/other specified period. The elaborate legal and regulatory framework given above is

essentially aimed at ensuring fairness and transparency during the entire PPP project life

cycle. Award and operation of PPP projects often invite close scrutiny by all stakeholders and

considering the size of projects and funds involved, it is imperative to adhere to prescribed

framework even as this may involve some delays in project implementation



ChapterChapterChapterChapter----9999: : : : Legal Legal Legal Legal and Regulatory Fand Regulatory Fand Regulatory Fand Regulatory Framework ramework ramework ramework

for Common Industrial Infrastructure for Common Industrial Infrastructure for Common Industrial Infrastructure for Common Industrial Infrastructure

ProjectsProjectsProjectsProjects

The preceding chapter has given details of legal and regulatory framework being followed for

PPP infrastructure projects in India. This chapter would examine legal and regulatory

provisions in various schemes for promoting common industrial infrastructure projects. It

would be important to appreciate that while schemes such as SITP, MFPS, IIUS etc. are often

referred to as PPP programmes, the projects under these schemes may not be regarded as PPP

projects. There are some pre-requisites for PPP projects, as defined by Ministry of Finance,

Government of India, which may not be met by common industrial infrastructure projects.

The structuring of common industrial infrastructure projects on PPP model may also be

considered challenging due to following key factors

(I) Challenges of PPP model for Common Industrial Infrastructure

Projects

(1) Ownership of project assets with the Government

To satisfy this core condition of PPP definition, land for the projects would normally need to

be arranged by the concerned government agency (Concessioning Authority), mostly by the

state governments. Under most of the schemes promoting common industrial infrastructure

projects, the responsibility of arranging land lies with the private sector. This is also due to

the fact that these Schemes are being implemented as central sector schemes by the Ministries

of the Government of India and it was not found feasible by these Ministries to take

responsibility of providing land

It may also be noted that the condition of arrangement of land by the government has, in fact,

led to huge delays in various infrastructure projects in the country. In recent years, land has

become an extremely sensitive issue for most of the state governments, which are

increasingly unwilling to acquire and transfer land for industrial and infrastructure projects

The requirement of land allotment by state governments has already had severe impact on the

progress of the Modern Terminal Market Scheme, the flagship scheme for modern marketing

infrastructure, by Ministry of Agriculture, Government of India. Most of the state



governments have not been able to find or willing to earmark a relatively large parcel of land

(say, around 40-50 acres) for terminal market projects and consequently the projects have

shown some progress in hardly 2-3 states. Even in case of projects which may not require

large size of land, finding land at locations with suitable basic infrastructure and market

connectivity remains a challenge

(2) Private sector given a contract/concession for the project term to recover

its investments

It may be appreciated here that typically PPP projects like roads, ports, airports etc provide

certain captive market to interested developers and, therefore, may not require large efforts at

market development. In fact, many PPP facilities evolve as monopolies which ensure certain

traffic (market) to private sector bidders selected for building and operating these facilities. In

case of roads and seaports/airports under PPP, most of these projects have little competition

and get assured traffic. In case of modernisation of airports under PPP in India, no new or

existing airport is permitted by Government of India to be developed as, or improved or

upgraded into, an International/Domestic Airport within an aerial distance of 150 kilometres

of the Airport before completion of 25 years of operation. Thus, the project operators in all

these cases are assured of a captive market and “market risk” to a large extent is taken care of

under PPP model. Of course, the market risk of accuracy of traffic projections would remain

This may though not be applicable to common industrial infrastructure projects. The facilities

created under these projects, though need based, would require to compete with similar

existing and future facilities, both in the public and private sectors. Considering the

effort/investment required in building forward and backward linkages for these projects, the

condition of transferring ownership of the projects back to the government/sponsoring entity

may also discourage private enterprises from bidding for these projects under PPP

(3) User charges need to be determined before implementation of project

This would be another challenge for common industrial infrastructure projects if these need

to be aligned with PPP model. User charges need to be determined in advance for projecting

“viability gap” for PPP projects, which may be a difficult exercise due to greater market

uncertainties in industrial and agribusiness infrastructure sector. Moreover, any private

enterprise operating in dynamic and competitive market conditions needs to have flexibility



in pricing its services. The absence of such flexibility may come in the way of commercial

sustainability of these projects

(II) Selection of Common Industrial Infrastructure Projects

As mentioned in the previous chapter, procurement of PPP projects is a very detailed and

complex exercise. There are clearly prescribed bidding guidelines and all the

Contracting/Concessioning authorities necessarily have to follow these guidelines for

selecting a preferred bidder. The Ministries implementing schemes/programmes promoting

common industrial infrastructure projects/facilities though follow different procurement

processes and some of these processes do not involve any bidding, technical or financial

The selection of projects under SITP initially was on “first come, first served” basis. The

Scheme provided for eligibility criteria for assistance, and all proposals from eligible

applicants were considered for approval by the Ministry of Textiles, Government of India.

The Ministry had though provided for a Project Management Consultant (PMC) under the

Scheme which was responsible for “speedy implementation of the Projects in a transparent

and professional manner so as to achieve high degree of quality at a low cost acceptable to

the members of the SPV for which fee will be paid to the PMC”

It was provided that PMC would report to Ministry of Textiles, which would directly

supervise the implementation of projects under the superintendence and control of Secretary

(Textiles). PMC was to discharge, inter-alia, following functions:

(a) Identifying the locations for setting up the projects based on a scientific assessment

of the demand and potential of the area.

(b) Facilitating formation of SPV at each project level with the participation of local

industry.

(c) Preparation of Project Plan including the setting of standards for infrastructure.

(d) Structure and appraise the projects and submit the same for consideration of Project

Approval Committee (PAC).

(e) Assist the SPVs in selection of agencies for preparation of bid documents,

construction, operation and maintenance of the facilities in the Project.

(f) Assist the SPV in achieving financial closure.

(g) Monitor the implementation and submit periodical progress reports to the MOT.



(h) To liaise with the State Governments to resolve state-related problems.

(i) Ensure timely completion of project(s) as fixed by the PAC

After going through responsibilities of PMC, it is evident that the Ministry clearly regarded

“project development” as an important pre-requisite for development of the textile parks and

thus invitation for proposals or “bidding” was not found appropriate without sufficient project

development work by the PMC. It was felt that without necessary hand-holding support to

textile entrepreneurs in various textile clusters of the country, setting up integrated textile

parks may not be found feasible by them and the Ministry therefore may not receive

sufficient number of proposals through a bidding process. There were also no specific

criteria given to evaluate proposals submitted for setting up textile parks and decision of the

Ministry depended on the evaluation and appraisal of projects by concerned PMC. During

12th Plan, though, the Ministry of Textiles has come out with detailed evaluation criteria, on

the basis of which proposals would be ranked and given approval. However, the

advertisement seeking proposals for textile parks released by the Ministry of Textiles did not

specify any last date for submission of proposals and thus may not be regarded as a bidding

process. In case of IIUS Scheme, too, DIPP has kept the Scheme “on tap”, and project

proposals can be submitted provided the eligibility conditions are met and due submission

process is followed

In case of MFPS, though, the Ministry of Food Processing Industries has been following the

bidding process from the first phase itself. One probable reason may be that the Ministry of

Food Processing Industries had in the first phase invited proposals for only 10 mega food

parks in the country and so it decided to not only invite Expression of Interest but also

specified the States in which these projects can be set up. It may be noted that later when this

Ministry invited proposals for more mega food parks in the country, the requirement of

Expression of Interest along with evaluation criteria of proposal was continued

In case of Mega Food Parks, the approval of projects is given in two stages: first, in-principle

approval is granted to projects after evaluation of technical proposals and these projects are

required to meet conditions of final approval within 6 months of in-principle approval

(1) No financial Bidding

A major difference between procurement methods of PPP projects and common industrial

infrastructure projects is the absence of financial bidding in the latter category of projects,



even if proposals are invited and evaluated as per pre-determined criteria. Thus, bids or

proposals in these cases are only evaluated on technical criteria, and all selected proposals

become eligible for grant amount, as provided under respective schemes.

It may be noted that in case of PPP infrastructure projects, financial bids play a critical role

and often become the determining factor in selection of a proposal/bidder. While need for

introducing financial bidding in common industrial infrastructure projects has been often

discussed by policymakers, it has been felt that such a provision would necessitate pre-

determining user charges, to estimate “viability gap”, as practiced in case of PPP projects. It

may be appreciated that bidders for PPP projects need to clearly mention user charges, based

on which viability gap has been estimated, and once grant has been sanctioned on given

assumptions, these user charges/tariff need to be adhered to during project period, subject to

permitted escalation benchmarks

As mentioned above, considering absence of captive market and prevailing dynamic and

competitive conditions, it has not been found desirable to insist on pre-determining user

charges for common industrial infrastructure projects. Thus, selection of such projects has

been done through evaluation of technical proposals alone

(2) MoA/MoU in place of Concession Agreement

As the common industrial infrastructure projects/facilities are provided grant funds and other

concessions by the government agencies, even though these are owned/ managed by private

sector entrepreneurs, legal and regulatory safeguards are necessary to ensure that project

objectives are met and public funds are not misappropriated but used in a justified and

transparent manner

There are various legal arrangements for involved parties to reach on consensus or mutually

agreed terms and conditions. Memorandum of Understanding (MoU), Memorandum of

Agreement (MoA), surety bond etc are some of the arrangements that have been incorporated

for the parties involved in the projects while designing schemes. MOT and MoFPI require

MoU/MoA to be signed by concerned parties for the project implementation by SPVs for the

schemes SITP, CHCDS and MFPS. On the other hand, there are some schemes, such as

Scheme for Development of AYUSH Clusters and Scheme for Cold Chain, Value Addition

and Preservation Infrastructure where the concerned parties sign a Surety Bond on a non-

judicial stamp paper. Surety bond is a concise excerpt of project description, financial



assistance to be provided, clauses to prevent undue delay of the project implementation and

to minimize the instances for unlawful use of taxpayers’ money on the part of concerned

party

(III) MoA/MoU: Salient Features

A well written agreement outlines the detailed terms and conditions that bind the two or more

parties involved in the project. Apart from specifying project location, area of the location,

facilities/ infrastructure (including the capacities/specifications) to be set up, grant-in-aid for

the project, the MoA/MoU also mentions roles, responsibilities and obligations on the part of

the implementing agency as well as the Ministry/Department of Government. It is important

to freeze the above project parameters so as to minimize the chances of disputes and to ensure

Criteria of Robust Legal Contracts:

A clear legislative and regulatory foundation enabling the public entities/utilities to enter into

PPP contracts and arrangements is desirable, to secure:

• A transparent and objective process for selection of infrastructure projects taking into

consideration concessionaire concerns about ‘value for money’ and welfare

consideration. In doing so, the process design must be consistent with the governing

framework for public procurement;

• A clearly defined approval, compliance and performance monitoring jurisdiction. This is

especially relevant in relation to the rights of local and other authorities such as the

Development Authorities, Municipal Authorities and Panchayat Raj Institutions;

• A clear definition of the role, responsibility and rights of various parties in the governing

instruments including the scope of public service, service standards, pricing, and scope

of governmental intervention or assistance;

• The participation of private parties in ownership and/or management of public assets

and/or delivery of public utility services;

• The vesting in such private party, the power to:

� Collect, retain and appropriate revenue to meet reasonable expenses incurred in

implementation of the PPP project including a pre-determined/ agreed return on

the funds employed;

� Seek revision of the charges and/or collection in terms of the concession

agreement, in order to facilitate business planning and financing.

• The role of the Concessionaire in maintaining and managing the PPP asset/services and

in controlling access to and usage of the infrastructure facility; and,

• The scope of bankability and securitization of the Concession, Project Assets and

revenue (including assignability) so that the Concessionaire is in a position to avail

affordable debt finance by securing lenders.

- Draft National Public Private Partnership Policy (2011), DEA, Ministry of Finance

•



timely completion of the planned projects. A comprehensive MoA/MoU also includes various

other clauses such as inspection and audit, events of default, force majeure risks, dispute

resolution mechanisms, representation and warranties, liabilities and indemnities etc. Some

major features of MoA/MoU relevant to the present study are summarized below:

(1) Roles and responsibilities of SPV:

As described in the previous chapters, generally the projects under most of the schemes are

implemented through involvement of Special Purpose Vehicle (SPV). Following are the tasks

which are generally incorporated in the MoA/MoU for SPVs as a part of project requirement:

• Conceptualize, construct, implement and maintain the project assets/project facility as

per the guidelines and the requirements of the schemes.

• Obtain all required permissions and clearances, appropriate proprietary rights,

licenses, agreements etc for the systems involved in the project.

• Procurement of the land and development of infrastructure and maintaining utilities

keeping the guidelines of the scheme into considerations.

• Provide all kinds of required reports to the concerned Ministry/Department

• To develop, implement, administer surveillance system and maintain safety

conditions on the project site to ensure soundness and durability of the project facility

and to minimize accidental damage at the project site, if any.

• Securing finance from bank, appointment and hiring the staff and officials appointing

contractors/consultants in compliance with the Scheme guidelines;

• Implementation of the project as per the compliance conditions apart from facilitating

the Ministry or program management agency for inspection;

• Maintain transparency and lucidity in activities throughout the project implementation

and operational phase.

(2) Roles and Responsibilities of Concerned Ministry/Department

MoAs in some of the schemes delineate the roles and responsibilities of the concerned

Ministries in implementation of the project, such as:



• Release of grant installments, subject to the SPV complying with the guidelines and

provisions of the scheme as well as of the agreement within stipulated time frame

from the time of approval by the Integrated Finance Wing

• Hold meetings at regular intervals to review the physical and financial progress of the

project;

• Liaise with other government agencies to expedite the process of necessary approvals

and clearances

(3) Trust & Retention Account (TRA)/ Escrow Account

Government schemes usually stipulate a separate escrow account/TRA for routing the grant

proceeds to ensure that the grant funds are utilized for the intended purpose. This is typically

monitored by the PMA appointed under the scheme. As part of the lending arrangements, the

escrow account is included in the TRA framework, whereby the loans disbursed are also

monitored through a designated bank account. In some cases, a third party TRA Agent is

appointed which is authorized to make all payments from the TRA, after certification from a

lenders’ agent. For this purpose, TRA Agreement is signed between the SPV and the bank

who acts as the TRA Agent. It is done to minimize the risk of misutilization or diversion of

funds by the management. This has been followed in the PMDO Facility, wherein IL&FS

Trust Company Limited (ITCL) acts as TRA Agent, and IUIML, the Asset Manager approves

all payments

On project completion, in the operations phase, the TRA is used to route all collections from

members, and payments are directly routed to the lenders by the TRA Agent. This not only

provides comfort to the lenders, but also to the members of the SPV, who are assured that

their payments to the SPV are used only for debt service

As per the guidelines of SITP, it is mandatory for the SPV to open an escrow account for the

project to receive all funds for implementation of the project including grant-in-aid disbursed

by Ministry. This account is subject to audit by Comptroller & Auditor General of India. It is

mandatory for SPV to allow the Ministry/PMA or their representatives to inspect books and

records pertinent to the grant funds and its utilization from time to time.



In case of CHCDS and MFPS, the SPV/applicant is required to open a TRA with the TRA

Agent in order to seek release of grant-in-aid sanctioned to the applicant by Ministries. TRA

Agent is generally a nationalized bank with satisfactory capital adequacy. The bank agrees to

be TRA Agent based on the terms and conditions mentioned in the TRA Agreement

The MoU under CHCDS further prescribes the SPV to enter into a TRA Agreement with a

Schedule-A Commercial Bank to utilize the grant-in-aid and other funds for the project

In MoA of MFPS, it is mentioned that the MOFPI will get the details of amount deposited in

TRA account and interest earned on the same. The interest earned by SPV from the

investments of MFPI grant in TRA account is adjusted against the total approved grant by

MOFPI

As per the clauses for TRA in MFPS, the company is required to open a current account as

TRA and deposit all cash inflows during the period of agreement including but not limited to:

• Equity share capital from sponsors.

• Non-refundable infrastructure contribution towards capital expenditure of the Mega

Food Park from sponsors under Lease Agreement / Leave and License Agreement, as

the case may be.

• Grant/s

• Fees received from the Sponsors under the Lease Agreement / Leave and License

Agreement.

• Proceeds of insurance under the Insurance Contracts

• Any other funds received by the Borrower

The withdrawals from the TRA commences only upon written communication from MOFPI

to the Trust and Retention Account Agent and the amounts deposited in the Trust and

Retention Account is utilized only for some specific purposes mentioned in the Agreement.

TRA Agent needs to notify the Ministry regarding deposits and withdrawals



The SPV may invest the surplus in Permitted Investments23 through the TRA. Such Permitted

Investment is made in the name of the SPV. The SPV should ensure that all Project Proceeds

are paid directly to the credit of the TRA during Period of Agreement. The duties of TRA

Agent are also specified in the TRA Agreement, which are as follows:

• To maintain TRA as a separate and distinct account;

• Keep proper books of accounts;

• No syndication charges to be paid out of TRA for any equity funding provided by

sponsors;

• No payment out of TRA in respect of Restricted Payments.

To maintain transparency in financial transactions, the company is required to operate three

accounts under TRA framework:

• TRA-I: This account is used to credit all the contributions raised from shareholders,

lenders and other sources except the grant from Ministry. The funds in this account

are used towards the payment of construction and equipment contractors/vendors,

PMC/engineering consultants for fees for providing engineering / architectural /

project management services and for pre-operative expenses.

• TRA-II: This account receives only the grant from MoFPI. The amount lying in TRA-

II can be utilized towards the payment to construction & equipment

contractors/vendors, PMC /engineering consultant(s) for fees for providing

engineering / architectural / project management services

• Regular Current Account: It is used to meet the salary and administrative expenses

during the project implementation period

(4) Release of funds

Generally, the grant assistance is released in installments subject to fulfillment of various

conditions. Different documents are being scrutinized at every stage of release of grant-in-

aid including Utilization Certificate (UC) in the format prescribed under the General

Financial Rules (GFR) before submitting claim for next installment. Phase wise release of the

financial assistance is an attempt to ensure the proper utilization of the funds towards the 23 As per TRA Agreement, “Permitted Investments” mean investments in Government of India securities, AA and any superior rated/liquid securities (as rated and accepted by Rating Agency) or other liquid securities as may be approved by the Company.



project execution

(5) Nominee Director

A nominee is a representative of Ministry who is appointed to supervise the operations and

implementation of the project and to sit-in on the proceedings of the board. MOT nominates

a director on the board of SPV as per the SITP Scheme Guidelines. In this way, the MOT

ensures effective implementation of the project and proper utilization of the grant.

However, there is no such clause in other schemes studied

(6) Timeline Requirements

The SPV is required to adhere strictly to the timeline of project implementation. The

approval of the Ministry is mandatory in case of any revision in the period of

implementation. In case of delays in implementation of the project beyond the agreed time

schedule, Ministries secure the right to levy penalties on the SPV based on the clauses

given in the MoA. This is because it has huge financial and operational implications on the

project which may impact the viability of the project adversely. Ministries also secure the

right to levy penalty on SPV if it is found that the grant has been utilized by the SPV for

non-eligible components of the project

(7) Dispute Resolution

A MoA generally clearly outlines the dispute resolution mechanism in its clauses. Any

unresolved dispute or difference between the parties is referred to arbitration of the sole

arbitrator to be appointed by the Secretary of the concerned Ministry on the recommendation

of the Secretary, Department of Legal Affairs (Law Secretary), Government of India

(8) Force Majeure Risks

A clause dealing with force majeure risks is generally incorporated to safeguard the interest

of the SPV. In case the performance of SPV has been affected due to any event which is

beyond the control of the concerned party, flexibility of time extension has been made

under these circumstances

(9) Dovetailing

Normally, the SPVs are entitled to dovetail the assistance from other schemes of GoI and/or

State Governments to finance the project subject to certain conditions. In MFPS, it is



specifically mentioned that there should be no duplication of assistance for the same

component/activity of the project. However, CHCDS does not mention any clause related to

dovetailing

(10) Intellectual Property Rights (IPR)

Although generally the schemes do not address the issue of IPR, however, due to the very

nature of the facilities and products, there is an attempt to point out the issues of IPR in

CHCDS. As per CHCDS, the concerned parties recognize the IPR of each other in the

materials to be delivered in connection with the activities in connection with the activities

to be carried out and agree not to publish any paper, file any patent/copyright, trademark,

design registration application in its own name or in the name of its associates on any matter

relating to the details supplied / disclosed by the other party, nor take any other action that

may prejudicially affect such intellectual property rights. Mutual agreement of the parties is

mandatory while taking up the ownership of the IPR in the work carried out under this

assignment

(11) Termination

A comprehensive MoA defines the Events of the Default which may be the reason to

enforce the termination clause by the Ministries. In case of default, Ministries are entitled to

recall the grant-in-aid given under scheme guidelines along with accrued interest thereon. It

also has right to recover the monies as arrears of land revenue

In the MFPS, the termination process has been described in detail. As per the MFPS, it is

binding on behalf of Ministry to issue a Preliminary Notice to the concerned party to inform

its intention to issue Termination Notice. In case the SPV does not take corrective measures

within 60 days of issuing Preliminary Notice, the Ministry is entitled to terminate the

agreement and recall the grant given under MFPS along with accrued interest thereon.

Alternatively, MoFPI is empowered to attach project assets created out of the grant given

under this scheme and use them for purpose or invite fresh bids from potential investors,

make changes in project scope and do anything else in the interest of the revival of the

project. While termination of the contract and/or attaching the project assets, clauses under

MoA under MFPS suggest the MoFPI to take lenders’ rights into consideration and consult

lender banks/financial institutions and conclude the best possible way to revive the project.

Hence, in case of financial closure for the project, the ownership of all project assets created



with the grant amount will not come in the way of SPV creating mortgage, lien on assets for

raising term loan. Similar process has been outlined in CHCDS Scheme

(IV) Surety Bond: Important Considerations

In case of Scheme for Development of AYUSH Clusters and Scheme for Cold Chain, Value

Addition and Preservation Infrastructure, surety bonds are signed between the respective

Ministry and the implementing agencies. Similar to the provisions of MoA/MoU, surety

bonds cover legal provisions of the contract, ensure them to be properly followed and

respected by the parties involved. In the surety bonds, the applicant generally has to specify

the amount of grant-in-aid sanctioned, purpose of financial assistance and location of the

project site. The surety bond comprises a clause indicating the conditions of the obligors and

compliance conditions mentioned in Letter of Sanction. It is mandatory for the applicant to

oblige to the terms and conditions of the grant by target dates, if specified. To prevent the

diversion of grant-in-aid for the purpose different from what is mentioned in Letter of

Sanction, the applicant is required to declare that he/she shall not divert the grant and entrust

execution of Scheme or work concerned to another institution(s) or organization(s). In case of

breach of the bond, Ministry is entitled to recall the grant-in-aid already disbursed to the

project along with interest of 10% per annum thereon



ChapterChapterChapterChapter----10101010: Special Purpose Vehicles for : Special Purpose Vehicles for : Special Purpose Vehicles for : Special Purpose Vehicles for

Common Industrial Infrastructure/ Common Industrial Infrastructure/ Common Industrial Infrastructure/ Common Industrial Infrastructure/

Facilities for MSMEsFacilities for MSMEsFacilities for MSMEsFacilities for MSMEs

(I) Definition and Overview

A Special Purpose Vehicle (SPV), also known as Special Purpose Entity (SPE) is a legal

entity created for a specific objective. The SPV could take any legal form; it could be a

company (private limited or public limited), corporation, trust/ society etc. The SPV after its

formation is governed by the law/ act under which it is registered

The concept of SPV was primarily used for financial transactions especially in the mortgage

sector. It started getting used as an implementation instrument when projects in Public Private

Partnership (PPP) as a mode of implementation in infrastructure projects were introduced.

SPVs were looked at as vehicles for facilitating private investment into infrastructure

development. Subsequently the concept of SPV was extended to cluster model based

infrastructure schemes also. While most of the schemes do not strictly follow PPP model of

implementation or the Viability Gap Funding (VGF), however they have been loosely

structured around these principles. The assistance provided is fixed with an upper limit and is

provided to all those eligible under such schemes, however the objective of providing

assistance remains the same i.e. encouraging private investment into viable infrastructure

projects. While VGF primarily aims at general infrastructure development and is aimed at

large projects, the cluster based schemes aim at development of industrial infrastructure and

in most of the cases sector specific facilities. The procurement under VGF is through bidding

while the funds under the schemes are available on tap based on the financial outlay for the

scheme

(II) Genesis

The cluster concept in development of infrastructure gained prominence in the late 90’s with

the launch of IIUS. Before SPVs became the instrument for implementation of schemes,

industry associations were recognized as the beneficiaries. However it was gradually realized

that though industry associations could be the promoters of such projects, it will be more

efficient to have separate legal entities created for setting up large projects. This shall also



address the conflict of interest issue between the industry associations and the project

shareholders

(III) Functions

A typical SPV under any Government of India scheme would generally have the following

responsibilities:

a. Prepare the feasibility and/ or Detailed Project Reports for the project covering the

technical, financial, institutional and O&M aspects of the projects.

b. Achieve the financial closure of the project through debt/ equity i.e. to raise the balance

of the financial assistance available under the scheme

c. Obtain any statutory approvals/ clearances for the project from the respective authorities

d. Documentation for release of funds

e. Recruit suitable functional professionals in order to ensure that the project is executed

smoothly

f. Implement various interventions as outlined and approved in DPR

g. Operations and maintenance of assets created under the project

h. Regular reporting to stakeholders

i. Meeting statutory and regulatory compliances under the law governing the SPV

(IV) Structures

While an SPV can be set up as any legal entity such as company, trust, cooperative society,

corporation etc, the most common form of SPV in most of the schemes has been a company.

Some of the schemes such as IIUS insisted on a Section 25 company (which has undergone a

revision now), scheme such as MSECDP though is flexible about the structure insists the

profits to be ploughed back into the SPV which essentially is a feature of a Section 25

company. While the legal structure of the SPV remains flexible, it is imperative that the

structure allows the flexibility to enter into arrangements with other stakeholders providing

backward and forward linkages to the project, service providers, financiers etc. A typical



SPV, supported by a Government scheme would enter into the following agreements/

relationships during project execution:

Most of the schemes prescribe the industry/ entrepreneurs to hold majority stake in the SPV

while balance could be held by State Government, strategic

some of the schemes specify the minimum number of enterprises in the SPV, such as 15 in

case of AYUSH, 7 enterprises on board in case of EMC scheme, 20 in case of MSECDP etc

there are schemes which have changed criteria o

Ministry of Textiles while reviewing the projects under the scheme felt that s

with respect of number of entrepreneurs and investments should be specified for the benefits of the

entrepreneurs. After deliberation, the following criterion was devised:

No. of Entrepreneurs

50 and above

Between 25 and 49



Government scheme would enter into the following agreements/

relationships during project execution:


while balance could be held by State Government, strategic investors/ mother units etc. While



there are schemes which have changed criteria over a period of time. Under SITP, the

Ministry of Textiles while reviewing the projects under the scheme felt that some guidelines


iberation, the following criterion was devised:

Aggregate minimum investment in land,

factory buildings and Plant & Machinery

(Rs. in Crores)

100

150


Government scheme would enter into the following agreements/


investors/ mother units etc. While



Under SITP, the

ome guidelines


Aggregate minimum investment in land,

ngs and Plant & Machinery



Between 5 and 24 300

Some of the latest schemes such as EMC specify that the investment in the park has to be

four times of the approved grant. Almost all the schemes specify that the maximum share of

any single enterprise cannot be such that the management control is held by him. While SITP,

Scheme for setting up of AYUSH Clusters etc specify that any individual unit cannot hold

more than 25% of equity stake, MSECDP limits this to 10%. These measures have been

included in the schemes to ensure that the benefits under the scheme are not cornered by a

few of the enterprises and the collective nature of the project is maintained

(V) Advantages

Some of the advantages which these SPVs offer are as follows:

• Transparency: The SPVs are legal entities and hence comply with the rules laid down

under the law governing that entity. The operations of the entity are more transparent and

regular reporting and compliance make the entity more open to its shareholders and

remain committed to its objectives

• Managing stakes of multiple stakeholders: In most of the cluster based projects, the

project promoters could be from diverse backgrounds with different level of interest in

the project. Typically the shareholders would be the entrepreneurs, Government agencies

(Central/ State), financial institutions/ banks and in some cases strategic partners such as

buyers etc.

• Better financial management: The SPV structure gives the flexibility to the promoters

and the members to invest as per individual capacity. The accounts of the SPV are kept

separate from the accounts of the members and the financial status of the promoter has a

limited bearing on the financial status of the SPV

• Limited risk by the promoters: By having a separate SPV, the promoters could restrict

their liability as well as risk to their equity share in the SPV. This provides confidence to

the members to go ahead with complicated and large projects

• Developmental Initiatives: The SPV provides a platform to the members to pursue

collective initiatives beyond setting up of infrastructure facilities. These include

initiatives for raw material procurement, collective marketing, shared logistics etc. This

brings positive externalities to the members associated with the SPV



• Role allocation as per strengths: Generally under the SPV, committees are set up to

pursue responsibilities such as financial, procurement, technical etc and members based

on their individual strengths are nominated for the committees. This brings a lot of

operational efficiency into the functioning of the SPV and also gives a sense of

commitment since most of the members are involved

(VI) Disadvantages

• No credit history hence limited financing avenues: The SPV is a new entity and does

not have any credit history. In most of the projects where external financing is involved,

banks and financial institutions have reservations on the lack of credit history of the SPV

and perceive it to be a high risk proposition. Further there are schemes such as MSECDP,

where the ownership of assets does not lie with the SPV and the first charge on the assets

remains with Government. In such cases, it becomes very difficult for the SPV to raise

finances. The documentation in the case of SPVs is more stringent and conditional based

on approvals and clearances. The cluster based model of financing is in the process of

evolution, however it shall take time to standardize the procedures and remove the

discretions to ease the financing

• Dependent on promoters’ credibility and eligibility: Due to lack of credit history of the

SPV, the promoters or the Directors of the SPV are required to give personal guarantees

in order to secure loan from the financial institutions. This is over and above their

contribution into the equity. This becomes a deterrent for many of the MSMEs to

participate in the project

• Difficult to manage diverse interests: The SPVs have stakeholders drawn from diverse

groups and their interests are driven by the nature of their own business. Though the

SPVs should ideally be managed by professionals, in cases where these are weak or

nonexistent the personal interests of the shareholders may lead to an unstable SPV

• Lack of ownership: Being collective projects and limited stake of the members, there is

lack of ownership of the members. Many a times this leads to weak management of the

project and ultimately leading to the project not getting successful

(VII) SPVs in Common Industrial Infrastructure Projects



The establishment and smooth operation of common industrial infrastructure Projects would

require a cohesive SPV structure. Considering the objective of setting up these facilities and

also the amount of financial assistance involved, it becomes imperative that SPV should not

only be committed to the project but also it should address the concerns of all stakeholders

The challenge for the sponsoring institutions thus is to ensure that such facilities are indeed

available for “collective” use for MSMEs located in the cluster or at least to all the

shareholders/members of SPV. This remains a huge challenge, as experience over the years

suggests that in many cases, such facilities are mostly used by some of the dominant

shareholders/members of the SPV, and other stakeholders of SPV are often deprived of the

advantages of these facilities

This becomes a much bigger challenge in case of the schemes which allow shareholders of a

SPV to own project assets, which becomes a huge attraction for private sector entrepreneurs,

all of whom may not be guided by the spirit of collective benefits. Two key challenges in

such projects are first, to ensure that project assets are being used for the benefit of all

shareholders of SPV and cluster stakeholders, and second, the ownership or control of project

assets is not transferred for material benefits.

The government agencies have attempted to meet the above challenges by prescribing nature

of SPV formation and its management, so as to ensure its collective and transparent

functioning. Most of the schemes stipulate a requisite number of members to from a SPV so

as to discourage concentration of control over project operations. There are also provisions to

induct government officials and other key stakeholders in SPV, so that project meets the

larger objectives of benefiting concerned cluster. In addition, under some of the Schemes, all

the shareholders need to enter into a prescribed Share Subscription Agreement (SSA) which

contains appropriate safeguards clauses. The obligations of the shareholders are clearly

prescribed in SSA and all the members are expected to adhere to these obligations

(VIII) Obligations of SPV and Shareholders under SSA

To start with, one of the obligations of SPV is to make the necessary changes to the

Memorandum and Articles of Association so as to incorporate, as far as it is legally valid and

possible, the provisions of this agreement in the Articles. It is also to be confirmed by SPV

that shareholding in the Company by approved shareholders is not diluted in any manner,

without requisite approval and their shareholdings are free from encumbrances



In addition, the shareholders of SPV are also obliged to meet certain conditions under SSA,

such as being responsible for implementation of the project in compliance of project

requirements notwithstanding the appointment by SPV of the contractor(s) to implement the

project facilities. SSAs often have an important provision that the members will do only the

stated activity i.e. textiles, etc and not just be investors or speculators, Thus the SSAs bind the

members into a common sharing and collaborative arrangement The shareholders are further

required to ensure compliance with performance standards at the time of commissioning the

project and execute such financing documents, agreements and provide necessary guarantees,

undertakings and security as may be required or stipulated by the lenders to the project

The above stipulations have been designed to provide a legal framework to the relationship

between SPV and its shareholders, which may be a set of diverse entities, with the aim to

implement the project in an appropriate matter

This provision of SSA has been used under both SITP and MFPS which had SPVs

incorporated under Companies Act. In case of the MFPS, additionally, the initial shareholders

are required to undertake that they would by themselves or through their affiliates, hold at

least 51 % of the equity share capital of the SPV at all times in case of induction of new

shareholders or any other changes in the equity structure of the SPV. This provision has two-

fold purpose, on the one hand, it is expected that the initial shareholders of SPV who came

together to form SPV remain committed to implement the project and meet its objectives; on

the other, it is to prevent these initial shareholders to transfer control of the assets and gain

premium, which may become possible after approval of large capital grant to the project

(1) MSE-CDP

In case of MSE-CDP, while there is no provision of SSA, as SPV need not be a company and

may take the form of a cooperative society, registered society or a trust, there remains strong

stress on ensuring “collective” uses of the facilities. The scheme guidelines provide that in

addition to the contributing members of the SPV, there should be written commitments from

‘users’ of the proposed facilities so that their benefits can be further enlarged. It is also

prescribed that bylaws of SPV should have provisions for inducting a state government

official as member of the SPV

There is provision of a minimum of 20 MSE cluster units serving as members of SPV, with

no ceiling on the maximum number of members, even as in some exceptional cases, a



minimum of 10 MSE units may also be considered for the SPV. To ensure democratic

functioning of SPV, it is further provided that a single unit would not be allowed to hold

more than 10 per cent in the equity capital (or equivalent capital contribution) of the SPV.

Although the scheme provides that large mother manufacturing firms, other major buyers of

the cluster MSE products, commercial machinery suppliers, raw material suppliers and

business development service (BDS) providers are eligible to contribute up to 49 per cent for

SPV, the management of SPV has to remain clearly with the intended beneficiary SPV

The scheme guidelines also provide for a Tripartite Agreement among the Government of

India, concerned State Government and project SPV for managing Common facilities centre

(CFC). The Agreement requires SPV to follow the directions of the central or state

government for better management of the SPV or the better running of the CFC. To prevent

misutlilisation of such facilities, the scheme guidelines also stipulate that in case CFC project

assets are sold or otherwise disposed of, the Government of India would be entitled to recover

the amount of loss as arrears of land revenue from the SPV and /or persons connected with its

management jointly and severally

(2) IIUS

In case of IIUS, there was initially provision of incorporation of SPV by the cluster

association for developing, operating and maintaining the infrastructure facility created in the

industrial locations. The scheme guidelines provided that SPV would be a Corporate

Body/Association registered under Companies/Societies Act and the stakeholders could be

the Private Companies, Industrial Association, Premier R&D Institution, Financial Institutes,

Local Authority (optional), Govt. of India - mandatory and State Government (District

Authority)- mandatory.

In 2009, the IIUS scheme was revised and it was provided that the project would be

implemented through a SPV, which would be a non-profit making company, registered under

section 25 of the Companies Act. SPV was required to have representatives from local

industries, financial institutions, State & Central Government and R&D organisation.

Another revision in IIUS guidelines now has done away with SPV structure itself. The

modified IIUS guidelines have also mentioned reasons behind this rethink. It has been

mentioned that the scheme was implemented through SPV in PPP mode during 10th and 11th

Plan, and this model faced serious practical difficulties which led to enormous delay in



implementation, cost escalation in case of majority of the projects, lack of project

accountability and shortfalls in achievement of outcome. It has also been mentioned that it

was found challenging for stakeholder industries to unite to form a SPV for creating a

common infrastructure due to internal conflict among industries. It has been further

mentioned that SPVs faced difficulties in raising equity from its members as envisaged in the

project; and some SPVs defaulted in raising funds and in some cases, state government and

local bodies contributed funds to the extent of failed contributions from the Industries.

Further, optional involvement of the State Governments in the scheme led to weak ownership

of the project with reduced financial, monitoring and mentoring support to the project. The

modified IIUS now requires State Implementation Agency (SIA) such as State Industrial

Development Corporations to be the implementing agency for promotion of industrial

infrastructure under the scheme.

These observations can be considered raising serious questions on the model of industry

promoted SPV, a model which has long been the most accepted implementation model for

common industrial infrastructure projects.

(3) Mega Leather Cluster

The recently launched scheme for establishment of Mega leather cluster by Department of

Industrial Policy & Promotion, Ministry of Commerce and Industry, Government of India

also provides for a flexible SPV structure. It is envisaged that SPV would be a legal entity

duly registered for this purpose. SPV may though be promoted by private companies

registered under the Companies Act, 1956 engaged in leather industry value chain, industry

organizations registered under Societies Act, financial institutions, R&D institutions, State or

Local governments or their agencies and units within the Leather Industry. It has been further

provided that the structure of SPV would be approved by the Empowered Committee at the

time of in-principle approval for the project

(4) Mega Clusters for DC (Handicrafts)

In case of Mega clusters being assisted by Development Commissioner (Handicrafts),

Ministry of Textiles, Government of India, while there is requirement of Implementing

Agency being a SPV and a legal entity, preferably a company, it can also be registered under

Societies Act. It has been provided that majority of the equity of such SPV would be with the

artisans/ craftsmen/entrepreneurs of the cluster and/or their associations/cooperatives/

federations/ SHGs. The remaining stake is to be held by strategic investors such as buyers,



large scale production units, banks, financial institutions, State Government agencies etc.

However, the individual stake of such agencies is not to exceed 26 percent.

(5) Plastics Parks

In case of Plastics Parks being assisted by Ministry of Chemicals and Fertilisers, Government

of India, SPV is required to be a distinct legal entity, ordinarily registered under Companies

Act, though it can also take other forms, with requisite approval. In this case, SPV is to be

promoted as a joint venture, to be formed by the State Government or any of its agencies such

as State Industrial Development Corporation (SIDC) in association with user enterprises

representing the plastic sector / sub sector. It is provided that the equity contribution of the

State Government or State Industrial Development Corporation or similar agencies of the

State Government would be at least 26% of the cash equity of the SPV (excluding value of

any land given as equity).

(6) Scheme for Development of AYUSH Clusters

The scheme, aimed at setting up of common facilities for development of unorganized and

micro AYUSH enterprises, mandated 15 enterprises operating in the cluster to be members of

the SPV. The structure of the SPV is preferably prescribed to be a company, however the

scheme monitoring committee has the authority to approve any other structure of the SPV as

well. These 15 members together need to hold atleast 51% of the equity and share of any

single entity has to be below 26%. The board of the SPV need to have three nominee

directors, one from Department of AYUSH, one from State mission on medicinal plants/

State horticulture mission and one from the PMC. This structure was to ensure that there are

enough checks on the decisions taken by the SPV as the projects involved a lot of financial

management. The members of the SPV were supposed to sign a SSA with the SPV besides

giving letters assuring usage of facilities. All the SPVs are advised to have functional/

technical committees to decide on operational matters and make recommendations to the

board on specific matters. Some of these committees are for civil works, equipment

procurement, capacity building, financial management etc. This structure also encourages

participation of most of the SPV members in the functioning of the SPV.

It is mandatory for all the 15 members to hold a valid AYUSH manufacturing license,

however to ensure that the member units have sufficient experience in dealing with the

sector, 12 out of 15 units had to be in business for more than three years while rest 3 could be

new entities. The members of the SPV are to be legally independent entities as per AS18.



However as the scheme progressed, due to the nature of the sector, it was felt that all the

members of the SPV needs to be GMP ( Good Manufacturing Practices) certified as without

that it was not possible for AYUSH enterprises to operate legally without a GMP license.

Hence, this clause was introduced in the guidelines.

When the scheme was launched, it was silent about the financial position of the members,

however it was felt by the Government that while it is important to have an equitable

structure of the SPV so that benefits are not cornered by relatively bigger units, it is also

important that the SPV has people with financial resources available to be able to invest in

the project. To ensure this, the scheme was revised in October 2008 and it was stipulated that

at least 3 to 5 of the participating units should have annual turnover of Rs.50.00 lakhs and

above and 5 units of Rs.20.00 lakhs and above.

(7) Electronic Manufacturing Clusters (EMC) Scheme

EMC Scheme was launched in April 2013. The projects under the scheme are to be

implemented by an SPV, however the scheme allows a Chief Promoter (a strategic investor)

to file the application and take all approvals for the project. The Chief Promoter, however is

required to form the SPV within 24 months from the date of approval. While the chief

promoter could be a unit, financial institution, academic/ R&D institution, Government

agency etc, the SPV needs to have seven constituent units on its board and it should be a legal

entity (company/ society). The electronics manufacturing units need to hold 51% of the share

capital of the SPV with no single unit owning more than 25%. The Chief Promoter or any

other legal entity (financial institutions, Government agencies, academic institution etc) could

also be part of the SPV. In case the SPV has a Government agency on board, it is mandatory

to have a State Government represented on the board in the cases where project is jointly

promoted by industry and Government. The scheme also prohibits the same SPV to set up

more than one project under the scheme.

(8) Scheme for Cold Chain, Value Addition & Preservation Infrastructure, MoFPI

(SCC)

In case of the SCC, there is no requirement of creation of an SPV for the implementation of

the approved projects. Any business entity including individuals (proprietorship concerns),

cooperative societies, Self Help Groups (SHGs), Farmer Producer Organizations (FPOs),

NGOs, Central/State PSUs, Partnership Firm, Private/ Public Ltd. company, LLP etc. can

apply for grant under the scheme. The projects approved under the scheme are typically in the



range of Rs. 20-25 crore with an average grant of about Rs. 8 crore per project. Applications

under the scheme are invited by MoFPI through EOIs. The proposals found eligible based on

predetermined eligibility criteria are further evaluated as per the approved assessment criteria

and proposals with higher scores are approved for grant assistance based on the number of

slots available. One of the basic criteria for a proposal to be considered eligible is that the net

worth of the applicant should be at least 1.5 times of the grant applied for. The revised

scheme guidelines have also made it mandatory for the projects to avail term loan from

Bank/Financial Institution for an amount not less than 10% of the project cost.

The SCC is fundamentally different from other common industrial infrastructure schemes as

these projects are primarily infrastructure development projects (with facilities such as cold

storages, IQF, blast freezers, sorting, grading, packaging, farm level primary processing, etc.

and refrigerated logistics) without any requirement of plot development for units. The

facilities under the scheme are created by the promoters after gauging the demand of such

facilities/ services in the production areas and/or in the consumption centres. The promoters

are free to decide the appropriate business model for the projects without any imposition of

conditions from the Ministry. The facilities, thus created, are either rented out to users (rental

model) such as farmers, traders, etc. or utilized for captive use by the promoter. The rental

model of the projects ensures that the facilities are used as common infrastructure especially

in the production clusters by providing storage spaces, logistics and other facilities to the

farmers and other entrepreneurs. Hence, the SCC, although not envisaged as a common

industrial infrastructure scheme, plays an important in creation of such common facilities in

the agriculture and allied sectors clusters



ChapterChapterChapterChapter----11111111: Challenges Faced by Lending : Challenges Faced by Lending : Challenges Faced by Lending : Challenges Faced by Lending

Institutions in Financing of Common Institutions in Financing of Common Institutions in Financing of Common Institutions in Financing of Common

Industrial Infrastructure Projects for Industrial Infrastructure Projects for Industrial Infrastructure Projects for Industrial Infrastructure Projects for

MSMEsMSMEsMSMEsMSMEs

(I) Common Industrial Infrastructure – As a Business Model

It has been observed that term loan component accounts for about 30-40 percent of total

project cost in case of schemes such SITP and MFPS. In Schemes such as MSE-CDP and

IIUS though the debt component is relatively small, there remains a need for bank finance to

achieve financial closure. The banks and financial institutions have to therefore play a

significant role to ensure implementation and operation of common industrial infrastructure

projects and facilities. However, the availability of loan for these projects is dependent on

establishing the financial viability of project operations, which has often been considered a

challenge by lending institutions. This chapter would examine the business models of these

common infrastructure projects and suggest measures to make them more acceptable to

lending institutions

It would be important to note here that business models for these projects under various

schemes vary a lot. But the core of business model remains that of SPV earning its revenue

through user charges for project core facilities and maintenance charges for basic

infrastructure

The difference between common infrastructure projects promoted by groups of MSME

entrepreneurs and developer led industrial parks and special economic zones promoted by

private developers is in the business model. For MSME SPVs, formed in the cluster model,

the objective is to share costs and achieve benefits for the owners (i.e. the MSME units which

form the SPV), while for developer led parks and SEZs, the objective is to earn income by

selling (or leasing) the developed industrial plots at a premium. In the latter model, the focus

of the promoters is to take the risk of land acquisition, clearances, investments, etc and earn

adequate return by way of appreciation in value of land due to infrastructure development

For cluster SPVs, thus the business model is usually based on a cost plus approach with

provision to earn income by way of user charges for common facilities and/or common

processing, effluent treatment charges, etc



The advantage in the cluster model is that the focus is on deriving benefits for the industry

and that is why govt schemes provide grants for such projects with the specific aim of

providing impetus to the concerned sector. Grants for developer led projects are rare and

benefits to SEZs are given by Govt in the context of export promotion rather than so much on

infrastructure developments

(1) SITP Business Framework

(a) Revenue Model

Under SITP, a SPV owns all textile park project assets which have been funded by the

Ministry of Textiles. Thus, project land, factory buildings and all other basic infrastructure

assets and common amenities are owned by SPV. Individual entrepreneurs (shareholders of

SPV) are provided readymade factory buildings to set up and operate their units by installing

necessary plant and machinery and other requisite equipment

SPV enters into a lease Agreement with the units. The lease Agreement provides rights to the

units for setting up textile facilities in the park and also contractually binds these units to pay

all such charges as may be levied by SPV for the allotment, development and maintenance of

infrastructure assets and provide recourse by way of right to replace units that have defaulted

in respect of payments to the SPV

SPV is responsible for the Operations and Maintenance (O&M) of all project assets including

common facilities and normally maintains adequately staff for this purpose. SPV recovers

O&M charges from the units by way of the following monthly charges:

• Charge I - Fixed Infrastructure Charge

This may include lease rentals and asset replacement charges apportioned to all industrial

units on the basis of allocable area. The asset replacement charges are for replacing fixes

assets at the end of their economic life (depreciation) and amount collected is to be deposited

into a “sinking fund”.

• Charge II - Variable Utility Charge

This is based on monthly consumption of utilities such as water, power and effluent treatment

and other O & M cost together with variable expenses of the SPV apportioned to all units on

the basis of allocable area to each of the industrial units



• Charge III - Finance Charge

Finance Charge is recovered from the units for paying the interest charges and principal

repayments of the loan taken by SPV for infrastructure development. This charge is also

apportioned on the basis of area under occupation by the individual Units.

SPV recovers all its costs from the entrepreneurs and also generates a small profit margin to

protect its future cash flows from any exigencies. It is important to ensure here that

operations of the units have the requisite capacity to absorb the cost of infrastructure as is

proposed to be charged by SPV to recover its capital and operational costs.

An illustrative profitability statement of an Integrated Textile Park

Operating Year 0 1 2 3 4 5 9 10

(Rs. Lakhs)

Revenues

Charge I - Fixed Infrastructure Charges

Finance charges 566.38 573.10 817.69 818.94 818.97 819.09 819.13

Asset replenishment fund 355.95 355.95 355.95 355.95 355.95 355.95 355.95

Charge II - Variable Utility Charges

Common Utility Charges

Maintenance charges (common infra.) 66.40 66.40 66.40 66.40 66.40 66.40 66.40

Administration charges 171.81 171.81 171.81 171.81 171.81 171.81 171.81

Power charges - SPV consumption 62.21 62.21 62.21 62.21 62.21 62.21 62.21

Specific Utility Charges

Maintenance charges (common amenities) 9.90 9.90 9.90 9.90 9.90 9.90 9.90

Total revenues 1232.65 1239.37 1483.96 1485.21 1485.24 1485.37 1485.41

Expenditure

Maintenance cost (common infra) 66.40 66.40 66.40 66.40 66.40 66.40 66.40

Power cost 62.21 62.21 62.21 62.21 62.21 62.21 62.21

Maintenance cost (common amenities) 9.90 9.90 9.90 9.90 9.90 9.90 9.90

Employee costs 19.32 21.25 23.38 25.71 28.29 41.41 45.56



Water cost 6.24 6.24 6.24 6.24 6.24 6.24 6.24

Other administrative costs 3.28 3.32 3.36 3.41 3.46 3.72 3.81

Total expenditure 167.35 169.32 171.49 173.87 176.50 189.89 194.11

PBIDT 1065.30 1070.05 1312.47 1311.33 1308.74 1295.48 1291.29

Interest

on term loans 559.71 559.71 545.87 513.26 476.51 276.61 209.85

on working capital borrowings 6.67 13.39 14.67 15.92 15.95 16.07 16.11

Depreciation 418.76 418.76 418.76 418.76 418.76 418.76 418.76

PBT 80.16 78.19 333.17 363.40 397.52 584.03 646.57

Tax 9.08 8.86 37.75 41.17 45.04 188.41 222.97

PAT 71.08 69.33 295.42 322.22 352.48 395.62 423.60

Net cash accruals 489.84 488.09 714.18 740.99 771.25 814.38 842.36

(2) MFPS Business Framework

A major difference between integrated textile parks and mega food parks is that while a SPV

normally constructs and owns all factory buildings in case of former, in case of latter, SPV

only constructs and owns factory buildings for core processing facilities and MSME sheds,

and leases out remaining developed plots to interested entrepreneurs for setting up food

processing units. SPV recovers O&M charges from the units by way of the following

monthly charges:

• Charge I – Lease rentals

Lease rentals for developed plots and MSME sheds are determined by SPV based on its own

cost of developing the park and may also take into consideration the market rates for such

plots/sheds.

• Charge II – User Charges for Core processing facilities and common amenities



User charges for use of core processing facilities such as warehouses, cold storage facilities,

ripening chambers, IQF and Deep Freeze facilities, aseptic/tetra pack facilities, weigh bridges,

plastic crates etc. are normally based on market rates. Similarly, common amenities such as

office space, canteen, guest houses may be made available to users on market rates.

• Charge III – Variable Utility Charge

This is based on monthly consumption of utilities such as water, power and effluent treatment

and other O & M cost together with variable expenses of the SPV apportioned to all units on

the basis of allocable area to each of the industrial units

An illustrative profitability statement of a Mega Food Park

Year 1 2 3 4 5 9 10

Capacity Utilization 50% 65% 75% 85% 90% 90% 90%

(Lakhs Rs)

Revenue

CPC

Land Lease Rentals 250.30 433.86 433.86 433.86 183.56 0.00 0.00

Rentals from SDF Sheds 22.50 39.00 39.00 39.00 16.50 0.00 0.00

Rentals from Core Infrastructure 1116.83 1599.66 2033.94 2540.60 2965.39 4389.02 4844.36

Rentals from Non Core Infrastructure 111.45 159.37 202.28 252.18 293.71 430.03 473.03

Rentals from Enabling Infrastructure 1767.43 2527.43 3207.89 3999.17 4657.86 6819.57 7501.53

Management Fee 69.41 127.25 139.98 153.97 169.37 247.98 272.77

Total CPC 3337.93 4886.57 6056.95 7418.78 8286.39 11886.59 13091.69

Revenue PPC

PPC – 1 53.42 76.39 96.95 120.87 140.77 206.11 226.72

PPC – 2 53.42 76.39 96.95 120.87 140.77 206.11 226.72

PPC – 3 53.42 76.39 96.95 120.87 140.77 206.11 226.72

PPC – 4 53.42 76.39 96.95 120.87 140.77 206.11 226.72

PPC – 5 53.42 76.39 96.95 120.87 140.77 206.11 226.72

Total PPCs 267.08 381.93 484.76 604.33 703.87 1030.53 1133.58

Revenue 3605.01 5268.50 6541.71 8023.11 8990.26 12917.12 14225.28

Expenses

Power 1404.99 2009.14 2550.07 3179.08 3702.69 5421.11 5963.23

Water 195.76 258.15 300.72 344.08 366.06 366.06 366.06

ETP 248.86 323.52 373.30 423.07 447.95 447.95 447.95

Fuel 262.80 375.80 476.98 594.64 692.58 1014.00 1115.40

Employee Cost 316.20 347.82 382.60 420.86 462.95 677.80 745.58

Maintenance 125.56 138.12 151.93 167.13 183.84 269.16 296.07

Insurance 79.94 79.94 79.94 79.94 79.94 79.94 79.94

Admin & Selling Overheads 61.00 67.10 73.81 81.19 89.31 130.76 143.83

Provision for Crates replacement 40.17 57.42 73.00 90.95 105.90 154.80 170.10

Total Expenses 2735.28 3657.01 4462.34 5380.93 6131.22 8561.59 9328.17

EBITDA 869.73 1611.49 2079.37 2642.18 2859.04 4355.54 4897.11

Interest Long Term Debt (LTD) 831.85 803.75 722.72 630.17 524.49 0.00 0.00

Interest Working Capital borrowing 55.48 78.10 96.29 117.29 132.31 187.94 206.09

Interest paid to BIADA for land 16.05 13.69 11.22 8.61 5.88 0.00 0.00

Depreciation 636.53 636.53 636.53 735.52 735.52 735.52 735.52

PBT -670.18 79.41 612.62 1150.59 1460.84 3432.08 3955.50

Tax 0.00 14.69 113.33 212.86 112.25 1130.97 1305.35



Net Profit (PAT) -670.18 64.72 499.29 937.73 1348.59 2301.11 2650.15

Net Cash from Operations -33.65 701.25 1135.81 1673.25 2084.10 3036.63 3385.67

(II) Distinct Business Models

While both SITP and MFPS essentially attempt to promote sector-specific industrial parks by

groups of private sector entrepreneurs, there are some major differences between envisaged

business models under these two schemes. In case of SITP, the revenue sources are largely

limited to recovering fixed infrastructure and variable utility charges along with finance

charges, which can be termed as a “cost recovery” model. Under MFPS, though, SPV has an

additional and significant revenue source in form of core processing facilities at both Central

processing centre (Hub) and Primary processing centres (Spokes). The user charges/rates for

these facilities account for major part of total revenue of SPV under MFPS. More important,

this part of revenue is benchmarked to the market rates and is likely to grow with time. The

benchmarking of user charges/lease rentals to prevailing market rates for developed plots and

other project facilities is possible in case of MFPS, as promoters of SPV and their clients

(industrial units in Park) are likely to be different. In case of SITP, though, the promoters of

SPV are in most cases entrepreneurs setting up industrial units (clients of SPV) and this puts

restrictions on the SPV in determining various rates/charges

The “cost recovery” model of SITP though has a distinct advantage as promoters of SPV are

envisaged as user entrepreneurs and so “market risk” may be regarded as quite low. In case of

MFPS, this “market risk” may be considered high as SPV would need to find entrepreneurs

willing to set up industrial units in the Park and also use their core processing facilities. Thus,

SITP and MFPS may be considered to provide two distinct business models of setting up

common industrial infrastructure/facilities

Patanjali Food and Herbal Park Pvt. Ltd – A Case Study

of the Hub and Spoke Model

Patanjali Food and Herbal Park Pvt. Ltd. (PFHPPL) was accorded Final Approval by the

Ministry in March 2009 to set up a Mega Food Park in Haridwar, Uttarakhand under the

Mega Food Parks Scheme. It was one of the first projects approved by the Ministry under this

Scheme and also the first of its kind public-private partnership project in the food processing

space in the hill state of Uttarakhand.



The total project cost of this food park was approximately Rs. 95 crore. The Central

Processing Centre (CPC) is spread over 70 acres on Laksar Road (in Haridwar district). The

Primary Processing Centres are located at Lal Tappar, Kotdwar, Daudpur Haji, Budhana,

Devprayag and Bazpur. The project (CPC and PPCs combined) possesses state-of-the-art

processing infrastructure like cold storage, Tetra Pack, warehousing, ripening chambers,

sorting & grading line, IQF, grain milling and world class quality testing laboratory among

others. In addition, to facilitate in processing activities, the CPC is equipped with a host of

enabling basic infrastructure facilities like roads, drainage, STP, ETP, WTP, rainwater

harvesting, 11 KVA electrical supply and 33 KVA sub-station. A fully equipped

administration building, office spaces, conference facilities and workers’ canteen

complement the processing activities at the project CPC. The CPC also has standard design

factory sheds for micro and small enterprises (MSEs). These sheds serve as plug-and-play

facilities for MSEs. As far as setting up units in the Park is concerned, CPC has

approximately 35 acres of leasable area for plots. At present, 17 processing and packaging

related units are operational in the Park spread approximately 30 acres. These units are

engaged in the production of candy, juice, murabba, flour, spices etc. State-of-the-art

packaging facilities are also available to these units. The cumulative turnover of these

industries is in excess of Rs. 250 crore, serving as a huge boost to the food processing sector

in general and state’s economy in particular. More importantly, the project CPC employs

over 5000 people (direct and indirect) and has become an important source of livelihood for

the people of the region. In addition, the storage facilities in these farm proximate facilities

shall help reduce wastage through the entire supply chain, a focus area, especially in a hill

state like Uttarakhand. This food park has been shining example of the success of the Mega

Food Park Scheme. It has provided an impetus to the local economy. Now the local producers

of raw materials are directly connected with the market, hence results in lesser wastage and

higher returns of the primary producers.



Photographs of the Patanjali Food and Herbal Park Private Limited

(III) Challenges of Business Models

The business model of SITP was designed to minimize market risk by insisting that only

those entrepreneurs who are willing to set up their units in the park, would be the

shareholders in SPV. It was thought that entrepreneurs setting up units in the park would

ensure financial sustainability of SPV as the owners of this entity and thus a textile park

project would remain support worthy by lending institutions. Two key assumptions to sustain

this business model are : (i) The textile units are set up and start commercial operations as per

the project schedule and (ii) the units themselves remain profitable and generate sufficient

margins to pay various charges of SPV (infrastructure, variable, finance)

The experience of implementation of textile park projects under SITP though has been mixed

and in many cases, the above two assumptions have not been met. While the model assumed

that all shareholders of SPV would be keen to set up their plant and machinery in allocated

factory sheds and start operations, in many cases this was not possible due to various reasons.



This also meant that those shareholders of SPV who have not started their operations in the

park, may not be willing to pay due charges to SPV, making it difficult for SPV to honour its

financial commitments to lending institutions

A key challenge to business model of cluster SPVs is that the SPVs are vulnerable to some

units not setting up their units in the agreed timeframes and/or not performing satisfactorily,

leading to delayed or reduced cash flows, affecting the financial health of the SPVs and also

affecting the debt servicing. As the revenue model is cost plus, and there is no market pricing

of land at the time of allotment, the scope for high profits is very less. Therefore, cluster

SPVs deserve special dispensation from regulators like inclusion in priority sector lending,

reduced capital adequacy on loans to such SPVs, easier provisioning norms, treating such

projects as infrastructure projects rather than industrial real estate, etc

(IV) An Innovative Model – Upgradation of Vatva Industrial Estate

Project, Ahmedabad, Gujarat

Vatva Industrial Estate is the largest and oldest estate set up by Gujarat Industrial

Development Corporation (GIDC) in 1960. It is spread over 560 hectares of land and houses

more than 3000 units in engineering, pharmaceutical and chemical sector. The estate employs

more than 1.50 lakh people and total turnover of the estate is estimated at Rs 15,000 crores

out of which approx Rs 4000 crores is exports. The units within the estate came together to

form an association named Vatva Industries Association (VIA) for looking after the welfare

of the estate

In 1986, the area came under Ahmedabad Municipal Corporation (AMC) Jurisdiction. From

1960 to 1986, GIDC collected services charges from all the units in the estate. After the estate

came in AMC’s jurisdiction, AMC started collecting property tax and octroi from all the units

and it collects approx. Rs 3.5 crores of property tax annually. The property tax collected by

AMC was meant to be utilized for maintenance of existing infrastructure facilities within the

estate. Over a period of time, the infrastructure facilities in GIDC Vatva did not keep pace

with the industrial growth in the area thereby considerably affecting the service levels. The

roads became un-motorable during monsoons and black top was usually washed during rains

creating deep potholes and undulations on the roads. There were also no proper rain water

drainage leading to massive water logging in the estate during the monsoon which used to



disrupt the movement of goods and services. The sewerage system was also in shambles and

all the units used septic tanks to take care of domestic sewerage

With an objective to improve the facilities in the estate, VIA took up an initiative for

developing an integrated infrastructure development program. However, VIA being a welfare

association did not have the requisite funds to take up the infrastructure development activity

on its own. After some efforts, it convinced AMC to share part of the property tax collected

from Vatva GIDC area for the development of the estate. After 2 years of pursuance, AMC

agreed to sign a MOU with VIA whereby AMC agreed to remit 75% of the property tax

collected by it from GIDC Vatva into an Escrow Account with a bank. The funds remitted to

the above Escrow Account were to be utilized by VIA/SPV created by VIA for the purpose of

infrastructure development in GIDC Vatva. VIA formed an SPV - Vatva Industrial Estate

Infrastructure Development Limited (VEL) for taking up the infrastructure development

activities. VIA applied to Department of Industrial Policy and Promotion (DIPP),

Government of India for comprehensive up-gradation under Industrial Infrastructure

Upgradation Scheme (IIUS) and obtained sanction of Rs 24 crores for

upgradation/development of the Estate for the following components:

(i) Upgradation of Roads and Construction of Storm Water Drainage

(ii) Solid Waste Treatment Facility

(iii) Upgradation of CETP

(iv) Disaster Management System

(v) Centre of Excellence and Training Centre

(vi) Acid Reconcentration Plant

VEL (SPV formed by VIA) also applied to State Government under Critical Infrastructure

Upgradation Scheme (CIPS) wherein they got a sanction of grant Rs 41.00 crores for

infrastructure upgradation of the estate. The project was implemented in three phases as given

below (along with the project costs for each phase):

Title Particulars (Rs lakh)

Phase I Roads, storm water drains and sewerage system 4800.00

Phase II Roads & storm water drains 2853.00

Phase III Roads & storm water drains 120.00

TOTAL 7773.00

The project was funded through the following means of finance:



Title Particulars (Rs lakh)

Users’ Contribution Property tax collections remitted to VEL 944.00

Grants IIUS Grant 679.00

CIPS Grant 3771.00 Debt Rupee Term Loans 2379.00

TOTAL 7773.00

VEL obtained term loans of Rs 23.79 crores and bridge loan of Rs 7 crores (the bridge loan

was required as the State Govt grant was back-ended) as per the following details:

S. No Bank Amount

Term Loan

Bridge Loan

1 Bank of India 10.00 5.00

2 Oriental Bank of Commerce 7.00 Nil

3 SIDBI 6.79 2.00

Total 23.79 7.00

In addition, Indian Overseas Bank also agreed to sanction financial assistance for the project.

The term loans were sanctioned only on the basis of hypothecation on property tax receipts

deposited by AMC into the escrow account opened by VEL. The term loans were structured

only on the basis of escrow of property tax receipts deposited by AMC into the escrow

account opened by VEL and MOA between AMC and VIA/VEL. No collaterals or personal

guarantees were stipulated as the project was to build public assets and no direct ownership

of any individual or industrial group was present

The project was successfully implemented with the creation of world class infrastructure in

the estate



Photographs showing the facilities created by the project

(1) Key Challenges during the project development and execution

The key challenges faced during the project development and execution stages are given

below:

(a) For the property tax reimbursement, initially there was no legal agreement

between AMC and VIA, there was only a MoU. Hence for the term loan

repayment, it was a requirement of the banks to convert the MoU into a MoA.

This was a challenge and it took almost a year to convert the MoU into a MoA.

Finally, a tripartite agreement between the banks, AMC and VEL was signed

(b) The sanctioning of term loan by the banks was also a challenge as there was no

security of assets against the term loan. The only security was the property tax

reimbursement agreement between AMC and VEL

(c) The estate was around 46 years old and there were no records or drawings of the

existing utilities. Hence during execution, lots of trial pits had to be done before

initiation of any activity. The existing utilities were then shifted and new activities

were planned accordingly. This issue delayed the project to a certain extent

(2) Impacts

The infrastructure development project had a strong positive impact on Vatva Industrial

Estate with the number of units increasing from 1800 to about 3000 during the project



execution. There was also an increase in turnover and export of most of the companies/units

present in the estate. The property tax collection also increased after the implementation of

the project. The World Bank published a case study on the project, highlighting the unique

structure which makes it one of the most innovative projects in the emerging economies. This

model was replicated by Odhav Industries Association (Odhav GIDC), the 3rd largest

industrial estate in Ahmedabad, and it has also successfully completed the infrastructure

upgradation project through CIPS grant and support from IL&FS

(V) Major Challenges Faced by Lending Institutions

One of the key constraints of common industrial Infrastructure project delivery for MSMEs is

the raising of finances. While its suits the initial objective of the SPV to develop project for

which it has been set up, larger aspects of parentage and the SPVs ability to support project

development, considering risks involved have always been under discussion. As SPVs,

irrespective of who the promotes are, do not have credit histories, it makes the lenders extra

cautious when it comes to project based lending

Lenders are, by-and large, comfortable to carry out collateral based lending so that, should

the loans go bad, they have adequate security to fall back upon. However, when such SPVs

are structured for project delivery, they are new companies and hence do not have the

wherewithal to provide any collateral for borrowing loans for part financing of projects. The

lenders thus have to fall back upon project recourse based financing, which means they

depend upon the project income once they are set up. In a project recourse based financing,

the security to the lenders will also be limited to all project assets created in the present and

future. However, for lending agencies like banks and financial institutions like SIDBI, these

projects offer viable lending options. The structure and nature of such projects has some

benefits like:

a. Part-funding by Government improves the viability and also reduces the effective

up-front cost to the industry, which is the ultimate source of repayment of any loan

given to such projects

b. Grant funding and minimum stipulated promoters’ contribution of 10-20% usually

sought, reduces the lending to only about 40-50% of the project cost, thus resulting

in an asset cover of 2:1



c. Grant schemes require the land to be in possession of the SPVs before grant release.

Therefore bank funding is protected from land acquisition related risks. Capital

appreciation in the industrial real estate of industrial parks is usually very rapid and

with land acquisition being the key hindrance to new industrial projects, industrial

parks have the cushion of appreciation in valuation of the projects

d. Association with such projects provides opportunity for lending agencies to build up

a large customer base for traditional banking business of working capital and term

loans, trade finance, and liabilities business

Such SPV based financing for projects is at least a decade old phenomenon in the country and

already many insights have been gained regarding the same. Cutting across various cluster

based projects in common industrial infrastructure/facilities for MSMEs, there have been fair

amount of learnings which are elaborated below:

(VI) Strengths of SPV Financing for Common Industrial Infrastructure

Projects for MSMEs

(i) Promoters find it comfortable to have an off-balance sheet financing, especially if the

projects are promoted by large groups

(ii) Promoters can rope in other stakeholders in the SPV, without having to worry about

sharing group related information

(iii)Promoters can address risks related to such projects on a standalone basis, and need

lesser effort to demonstrate the same to anyone concerned

(iv) As such projects focus on a specific project to be delivered, the management is able to

focus better on accomplishing the tasks set at hand

(v) Government agencies part funding the project can monitor the project development

and be a part of the process as well

(vi) Lenders can ascertain the quality of revenues very early in the project and suggest

corrective actions to the SPV management

(vii) Lenders can proceed in a cautious manner in disbursing loans to the project after the

SPV contributes their part of the funds and so does the Government agency, in case of

part funding coming from the Government

(viii) Members of cluster based SPVs can look at arranging loans for their respective units

on a common framework



(VII) Weakness of SPV Financing for Common Industrial Infrastructure

Projects for MSMEs

(i) As SPVs do not have credit history, there is a need to structure working capital for

projects which are developed for common facilitation purposes

(ii) Although the SPV financing happens on a project recourse basis, lenders generally

insist on promoter guarantees, apart from other project covenants and terms. Absence

of such guarantees has a bearing on the rate of interest of borrowing

(iii)As SPVs do not have a credit history, lenders look at the strength of the balance sheet

of promoters, more than that of project sector strengths, likely revenues the project

would earn and overall payment capability of the project SPV. While that is

important, it still leads to non recourse funding and dilutes the spirit of project based

funding

(iv) In case of infrastructure SPVs, any failure by project would still be contained by

promoters of the SPV. However, when it comes to cluster based projects, there would

always be a combination of members who are prompt in their payments and some

members who default, due to various reasons

(v) In order to cover up eventualities like defaults or non payments, special reserves or

covenants would need to be built up at initial stages by the SPV, which members may

have hesitation to or it may lead to disagreements

(vi) Project implementation, no matter how well they have been planned, may lead to

delays in completion and in earning revenue thereafter. As lenders look for

continuous compliances to structured covenants, SPV maybe in specific defaults to

covenants if there is no specific excuse / covenant waiver mechanism

(vii) As lenders will not be able to monitor such loans on a daily basis, there is an

imminent need of third party appointments like Lenders Engineers, Asset Managers,

Trust to hold security etc. These transactions increase the cost of borrowing to the

project SPVs

(viii) It has also been observed that banks often ask corporate as well as personal guarantee

from promoters of SPVs of common industrial infrastructure projects. Hence,

promoters may be liable to repay without having complete project ownership. Since

SPVs generally have no one owner, the promoters are reluctant to provide such

guarantees to the banks for loans to the SPVs. This, sometimes, discourages the

promoters to come forth for the project implementation. The banks generally have



comfortable security cover against the term loan provided to the SPVs. Hence, banks

may forgo personal/corporate guarantee of the promoters given the huge financial

assistance from Government and security protection for the project

(VIII) Bankability of Common Infrastructure Projects

The basic objective of SPVs that are promoted for setting up common infrastructure projects

is to invest in the assets, develop & lease out plots, receive grants and loans, and O&M of the

facilities created. In the financial models used for bank financing, income is projected for the

SPV usually through service charges linked to project, recovery of depreciation costs by way

of charges like asset replacement fund, sinking fund, maintenance charges for the facilities,

etc. This gives adequate debt service cushion to the SPVs and provides comfort to lenders.

However, in reality, there are very few SPVs which actually levy these charges due to

resistance by the members. This affects debt servicing and gives SPVs a negative outlook in

credit monitoring by the lenders and risk rating by rating agencies

The actual source of repayment of loans is through collection of dues by the SPVs from their

members which are industrial units operating in the facilities created. As all units do not

commence their operations at the same time i.e. the projected SCOD, debt service gets

affected in initial stages

(1) Distributed Ownership

The ownership of all project assets, including building, plant and machinery, misc. fixed

assets, utilities etc. constructed with the grant amount vests with the SPV which is

responsible for operation and maintenance of such assets. Generally, common infrastructure

projects do not have one single promoter or promoter group, which makes identification of

responsibilities for compliances and repayments difficult. Usually, a few units and their

owners take initiative and responsibilities at the time of project initiation and are usually

Directors on Board of the SPV. Accordingly, they take care of project implementation and

liaise with lenders for sanction of loans, documentation and disbursements. So the lenders

usually rely on them to ensure debt servicing. However, it is to be understood that the actual

source of repayment of the loans is not just these directors but all the members of the park.

As all members are exclusive to each in their individual operations, their ownership and

obligations are limited to their holding of the land in the project. Therefore, their obligations



for debt repayment are also pro-rata allocated accordingly and therefore each member’s debt

service obligations are limited to a discreet amount. In such an event, default by few

members is not usually made good by other members. Due to this, plausibility for having

irregularities in debt servicing may arise

Due to the nature of ownership and distribution of equity, personal guarantees are not

structured in the sanction terms as the debt service obligations are not ‘joint and several’ in

nature

(2) Collateral

Typically, banks have practice of taking additional collateral security which is in addition to

the primary security i.e. project assets. This has been done through immovable properties of

promoters in MSMEs and such collateral acts as deterrent to defaults by the borrowers. In

common infrastructure projects, there is no collateral available with the SPVs. This makes

some banks reluctant to sanction such projects

(3) Security

While there is adequate asset cover for lenders, as large portion of assets are funded by the

grants from the government, the individual members face difficulty in arranging for security

when they borrow for setting up projects in the land allotted to them by the SPV. This is

because the ownership of land (and also buildings thereon in projects like SITP) is vested

with the SPV, and therefore the same gets mortgaged to SPV lenders. Thus, there is usually

difficulty faced by members in leveraging the value of the property for raising loans

(4) Debt Servicing

Several common infrastructural projects that are funded by banks face difficulty in ensuring

timely repayment to lenders. This is because the SPV usually has to rely on collections from

multiple sources every month to make interest & principal payments to the lenders. If some

members default in their obligations to the SPV, there is a shortfall in debt service. This is

usually made good in subsequent month by collection in arrears from the members. However,

due to the 90-day NPA norm of financial sector, there is little time cushion available to SPV

to manage its collections from the members



The Palladam Hi-tech Weaving Park: A Case Study on Structured Financing

Model

Palladam Hi-Tech Weaving Park is a textile park located in Palladam, between Coimbatore &

Tirupur, Tamil Nadu. It is the first of its kind integrated textile Park in the country and is spread over

65 acres with a project cost of Rs 55.42 crores. The Park has 90 units of which 74 are operational and

was inaugurated in April 2008. The Park has been set up under the Scheme for Integrated Textile

Parks (SITP), an initiative of the Government of India. It is a Public-Private Partnership operated

through a Special Purpose Vehicle (SPV) named PHWP, constituting the entrepreneurs, banks and the

Government. IL&FS Cluster Development Initiative Ltd (IL&FS Clusters) was the project

implementation advisor that has assisted the SPV from the level of conception to commissioning of

the project. The Ministry of Textiles (MOT) had approved a grant of Rs 22.17 crores to PHWP for the

Park. Therefore, the SPV was required to raise the balance 60% of the project, and also to meet the

pre-operative expenses. The majority of the members were SSI units will little financial backing to be

able to raise such a large quantum of loan from banks directly. Further, the shareholding was widely

dispersed across more than 90 shareholders with no member having stake substantial enough to be

termed as main promoter. In the event of such pre-determined conditions, it was difficult to establish a

bankable model for financing the park and financial closure was being delayed. It was at this juncture

that IL&FS Group intervened with its expertise in project structuring, debt syndication and

documentation. It took the lead in achieving financial closure and negotiated with banks with whom

IL&FS had previous relationships through other large infrastructure projects. The borrowing was

arranged for the SPV to financing the SITP infrastructure. As a precursor to this arrangement, IL&FS

Group facilitated the whole deal by drawing up the resource distribution and usage arrangement

between the SPV and members. All the key documents were vetted by the international legal firm

White & Case. To arrive at the financing requirements, a business model with a standard 6 loom unit

was designed with an annual turnover of Rs. 52.5 crore and cash profit of Rs. 10.7 crore. The loan

features were also designed very competitively with the following features:

a) Term of 13 years

b) Interest rate of 9% per annum to be reset every 3 years and

c) Pledge the shares of SPV and members as security.

Based on these terms and conditions, term loans of Rs.27.68 crores from the following lenders were

raised for the park:



a) IL&FS: Rs 5 crore

b) SIDBI: Rs 5 crore

c) Indian Bank: Rs 5 crore

d) Central Bank of India: Rs 5 crore

e) Bank of India: Rs 5 crore and

f) Canara Bank: Rs 5 crore.

With a present loan outstanding of Rs 22.50 crores, the model whereby the SPV initially borrows the

loan but the repayment liability vests with the individual members seems to be a workable viable

model. The key success factor of this project was due to the key anchor promoters, Mr Senthil Kumar

in this case, professional management for running of the Park, strict action against defaulters and an

inherent sense of commitment from the members to meet their dues for ensuring sustainability of the

Park.

Photographs of Palladum Hi-Tech Textile Park



(IX) Risk Assessment Framework

As mentioned earlier, common Industrial Infrastructure projects involve certain challenges

and complexities during implementation phase as well as during operational phase. Such

challenges and complexities may lead to certain risk factors during implementation which are

needed to be analyzed based on an appropriate risk assessment framework. Mechanisms for

minimizing such risks include: (a) conducting due diligence as to the possibility of the

relevant risks; (b) allocating such risks to other parties as far as possible and (c) buying

adequate insurance cover which would cater to financier’s interests.

Financiers are concerned with minimizing the dangers of any events which could have a

negative impact on the financial performance of the project, in particular, events which could

result in the project not being completed on time, on budget, or at all; the project not

operating at its full capacity; the project failing to generate sufficient revenue to service the

debt; or the project prematurely coming to an end.

Every project is unique and it is not possible to compile an exhaustive list of risks or to rank

them in order of priority. What is a major risk for one project may be quite minor for another.

Therefore, it is important to categorize the risks according to the phases of the project within

which they may arise - (1) Project Design and construction period and (2) Operating period.

It is useful to divide the project in this way when looking at risks because the nature and the

allocation of risks usually change between the construction phase and the operation phase. In

the following sections, indicative Risk Assessment Frameworks for different phases of

infrastructure projects have been given.

(1) Project Design & Construction Risk

Risk Assessment framework for project development and construction phase are as follows:

Risk Mitigation Framework

Project Design/Construction risk

Status of Land

Availability of suitable land is one of the most critical requirements for

successful implementation of large infrastructure projects and hence

the due diligence of land is a very important part of the risk

assessment. Some of the key parameters of evaluation of risk rating of

the identified land involve assessment of the following:

• What is the status of land procurement and acquisition?

• Is the land free from dispute regarding the title, acquisition and/ or



compensation of the land?

• Is there any political opposition/hostility regarding the acquisition

of the land?

• Whether the land title rests with the SPV? (Mutation)

• Whether the land is agricultural or Industrial land?

• If it is agricultural land, what is the CLU status?

• Is the land already mortgaged to other bank/s?

• Is sub-leasing of plots allowed by the State Government?

• Is the land located in Ecologically/ Environmentally Sensitive

Area or Coastal Regulation Zone?

• Is the land notified for other purpose by the state/central

government?

• Is the soil type suitable for the proposed activity?

• How prone is the land to flood, earthquake or other natural

calamities?

• Is there any other issue which may hinder the implementation and

operations of the project?

Site Connectivity

The connectivity of the identified site is highly important for the

infrastructure projects. As discussed earlier, many of the government

schemes require the project land to be larger than certain area.

Considering the paucity or the high price of large contiguous land

parcels near urban/ business centres, sometimes the proposed land is

situated in remote areas which are away from the urban/ business

centres without good connectivity and generally the land is completely

undeveloped. Such conditions affect the feasibility of the projects and

hence it is important to assess the risk associated with site connectivity

and prioritize it accordingly. Some of the key parameters of evaluation

of risk rating of the site connectivity involve assessment of the

following:

• Is the site connected with an all weather road?

• How far is the site from the nearest National Highway and State

Highway?

• Is there any requirement of enhancement of connectivity of the

site? If yes, what type of enhancement is required and at what

cost?

• How far is the land from the nearest Airport and Railway Station?

• How far is the land from the nearest port?

• Is the site well connected to the raw material producing areas?

• Is the site well connected to the main consumption centres/

forward markets?

• Does the site have water and power connectivity?



Project Design

Approvals, bid

management and

construction

supervision of the

Project

• Has the SPV appointed a professional agency as its Project Management

Consultant, which will assist the SPV in Project Development, Approval

Process, Bid Process Management and Construction Supervision of the

Project during implementation?

Promoter Risk

The promoters of SPV and the SPV structuring/ dynamics is critical for

the success of any large infrastructure project. For the financing banks,

it is very important to very

The key parameters of evaluation of risk rating of promoters involve

assessment of the following:

• Background, experience, financial strength, SPV ownership

details.

Moreover the following important parameters should also be

specifically assessed in details.

• Does the SPV have diversified ownership?

• Do the roles and responsibilities of all the SPV members are pre-

defined properly without conflict?

• Does the equity contribution by all members have been defined?

• Is the management structure of the SPV decided and agreed upon

by all the members?

Financing/ Project

Risk

In common industrial infrastructure projects, financing of projects is

primarily done on a stand-alone basis, with banks and financial

institutions adapting the same risk models which are applied to the

manufacturing sector. The key parameters of evaluation of risk rating

of companies involve assessment of the following:

• Financial risk: Evaluation of the financial position of the company,

turnover, profitability, liquidity, debt burden, debt service

capability and repayment, asset quality, financial flexibility and

cash flow adequacy, interest and inflation rate volatility, etc.

• Industry risk: Industry characteristics, size, growth potential,

cyclicality, Government policies (duties, price controls, licensing

etc.), competition, threats of imports/substitutes/unorganized

sector, technology risk, entry barrier/s, bargaining power with

supplier/s, etc.

• Business risk: Market position, product range, quality, brand

equity, operating efficiencies, availability of raw material, market

for finished products, etc.

Delay in project

completion and / or

• Whether certain fixed price contracts with contractors and

suppliers of the equipments are in place?



construction cost

overrun

• Whether the risk of delay and cost overrun will be passed on to the

contractors/suppliers? Such clauses should be suitably provided for

in the TOR/MOU to be entered into with various contractors and

equipment suppliers.

• The technical consultant should periodically submit progress

reports on the project construction and would bring any time

slippages to the attention of the Board of Management.

Availability of

Water & Power

The utilities such as water and power are extremely important for

successful implementation and operations of such project. The risks

related to availability of water and power need to assessed during the

project designed and suitable mitigation measures need to be adopted

against the associated risks. The key parameters of evaluation of risk

related to availability of water and power involve assessment of the

following:

• What are the proposed sources of water and power?

• Is there any cogeneration of power proposed?

• What are the alternate sources of water and power?

Utilization of funds

by SPV for

unauthorized

payments

Proper utilization of funds by SPV is a critical aspect of project

financing and risks associated with fund utilization should be assessed

in details. It is also important to put in place efficient checks and

balances based on the risk assessment to prevent unauthorized

payments by the SPV. The key parameters of evaluation of risk related

to utilization of funds involve assessment of the following:

• What kinds of provisions have been made for receipt of funds and

expenses to be incurred?

• Whether project funds would be routed through Trust & Retention

Account (TRA) to ensure that all the money raised by the SPV

(from the promoters as equity contribution, from the units by the

way of long term / non refundable deposits, if any, GoI’s grant and

debt) are utilized in a transparent manner for authorized

expenditure during the project implementation and operational

phase?

• Are there discrete sub-accounts of the TRA exclusively for

receiving grant and loans?

• Who will be the TRA agent? A bank should be designated as TRA

agent for escrowing all funds flows / cash flows of the SPV during

the project implementation stage.

• Whether a proper system is in place which would ensure that funds

are withdrawn from the TRA account for the purpose of utilization

in and order of priority laid out below (indicative):

� For the construction of the project – Payments to be made to

contractors and equipment suppliers for various components of



project. The invoices should be duly verified by the various

technical consultants/engineers for the specific areas appointed

by SPV. The contractors and equipment suppliers should be

selected through prescribes and defined guidelines for

procurement of goods & services for which a procurement policy

approved by Board should be followed.

� For operating expenses such as:

o Payments towards salary and other administrative

expenses during the project construction as well as O &

M expenses incurred by the SPV directly through the

O&M contractor(s), if appointed for the operations

assistance. Such expenses should not exceed beyond pre-

specified percentage of the projected monthly expenses in

the annual budget approved by the Board of Directors of

the SPV. All exceptions in this regard should be cleared

by the Board of directors through passing resolution on

the same.

o On approval of the Board of Directors for budgeted

operating expenses for specific period, the TRA agent

should release the requisite amount in a current account

maintained at the Escrow Bank at the beginning of each

calendar month.

� For Loan Repayment: Monthly installments (including interest

and repayment) of the loans taken by the SPV should be remitted

by the TRA Agent directly to the Lenders

� Payment into Debt Service Reserve Account (DSRA) and

Common Debt Service Fund (CDSF) and other reserves

stipulated by the Lenders, if any, to maintain the required

balances and minimum coverage amount therein

� Payments of Dividends to the shareholders of the SPV should be

approved by the Board of Directors and the Shareholders of the

SPV.

Force Majeure

Events

• Is there suitable insurance cover for insurable items/ events?

(2) Operating Period Risk

Risk Assessment framework for operating period is as follows:



Risk Mitigation Framework

Operating Period Risk

Risk of recovery of

charges and/or

members' businesses

not doing well

• Are there suitable agreements between the SPV and individual

members (units) for fixed and variable charges?

• Do the agreements have provisions such as recourse by way of

rights of replace units that have defaulted in payments or which

do not commence operations within a given time period?

• Do the agreements have suitable clauses to claim compensation

and/or recover payments in case of breach of agreement by the

units?

• Do the agreements have other provisions such as security

deposit, etc. which would be forfeited in case of defaults in

payments by the units?

Units do not

commence production

• Is there a provision for re-possession of the factory shed / plot

by SPV in the event a unit does not commence production

within a given time period or such time may be extended By

SPV?

O & M risks

• Has the SPV entered into suitable O&M contracts for the

operation and maintenance of project assets?

• Do the contracts have suitable clauses to claim compensation

and/or recover payments in case of breach of contract by the

O&M contractors?

Availability of

manpower

The risk associated with availability of skilled manpower in the

project area should be assessed carefully. The key parameters of

evaluation of risk related to availability of skilled manpower

involve assessment of the following:

• Is there easy availability of skilled manpower in the project

area?

• Is the political/ trade union environment in the project area

suitable for engaging suitable labour force for the project?

• Are the Labour Laws and other relevant Laws being

implemented strictly by the SPVs and the units?

• Have necessary steps been taken by the SPV to organize

training programs for unskilled manpower?

• If yes, have the training programs been designed and

undertaken in consultation with professional agencies having

requisite competency?



ChapterChapterChapterChapter----12121212: : : : Way ForwardWay ForwardWay ForwardWay Forward

During 10th and 11th FYPs, the GoI introduced several schemes to develop common industrial

infrastructure in manufacturing sector with huge grant assistance to private sector with an

objective to achieve economic growth. There was a paradigm shift in which the thrust on PPP

models for infrastructural development of the country witnessed large scale participation of

the private sector. In this regard, the GoI trusted the private sector with the belief that it

would bring efficiency in the implementation of various schemes and programs through

demand driven and commercially viable interventions. Also, it was assumed that private

sector participation would enable the Ministries to timely complete such capital intensive

projects. Most of such private sector participation came through schemes providing capital

grant which, although may not be defined as a classical PPP model, but was in the spirit of

the private sector participation as envisaged by the GoI. During the last 2 FYPs, a large

number of private sector driven common infrastructure projects have been approved and are

at various stages of implementation. For example, the MoT has approved as many as 61 ITPs

and the MoFPI has approved a total of 34 MFPs (excluding 8 projects which have been either

withdrawn or cancelled). However, considering the demand for such projects, these projects

have not been able to meet the requirements of the concerned sector and many states and

regions remain devoid of due coverage. In the following section, the response of the private

sector to the schemes and programs has been discussed

Experience of Implementation by

Private Sector

However, the experience of Government

Ministries/ agencies with private sector

in execution of such projects in the past

decade has been mixed, with some of the

projects showing huge delays in

implementation period and even when

the projects have been executed the core

objective of creation of such common

industrial facilities has often not been served. Private agencies have largely failed to address

the demand for creating infrastructural facilities in timely and efficient manner. Based on the

7

17

3

12

1

21

61

FY 2005-2006

FY 2006-2007

FY 2007-2008

FY 2008-2009

FY 2009-2010

FY 2012-2013

Total

Number of Textile Parks Approved



experience and glitches in implementation of the government schemes through such models,

12th FYP had brought in a change in approach in the whole process by encouraging increased

roles and responsibilities of state agencies in implementation of such projects. For instance,

as mentioned earlier, schemes such as IIUS and MFPS calls for increased involvement of

state agencies. The revised guidelines of IIUS have now done away with SPV structure itself

and have allowed only State Implementing Agencies (SIAs) such as SIDCs or any equivalent

state entity as identified and recommended by the respective state governments to apply

under the scheme. In revised MFPS scheme as well, the MoFPI has now allowed state

government/ state government entities on their own to apply under the scheme even without

forming separate SPVs. Earlier, the scheme allowed state government ownership of the SPVs

up to only 26%. These decisions have been taken based on appreciation of the challenges

faced by the private sector in implementation of such projects

It is appreciated that there may have been other external factors, which may have affected the

scheme implementation adversely in the previous Five Year Plans. In the last 4-5 years the

economic downturn, which was experienced all over the world including India, might have

impacted the capacities of private players which in turn affected growth and momentum in

the common industrial infrastructure projects

Moreover, it has been observed that in many cases, the implementing agencies had faced

several obstacles such as delay in change in land use permissions, environmental clearances

and other statutory clearances. Such considerable delays have huge ramifications not only in

terms of timeline of the project but also in financial health of the project making many

projects unviable. Further, during this period, land acquisition, especially for large projects,

became a difficult issue which did not allow some projects to take off. In many cases the state

governments were unable to hand over the duly allotted land to the SPVs in time due to

various complications involved, which includes opposition from local communities etc

In spite of the above issues, there have been enough opportunities in the sector for successful

private investment especially when assisted by GoI with large financial grants/ subsidies.

However, many a time such private investments in the common industrial infrastructural

projects were not successful. Large corporate players generally have not found the schemes

very promising because of some inherent issues. This is especially true for the schemes which

make it mandatory for SPVs to have at least a certain number of members and restrict the

percentage of share holding of each member in SPV. Many of the large corporate players are



not comfortable with such diluted ownership and most of the times, they want complete

control on the decision making process for the projects. The entrepreneurs who came forward

for the implementation of these schemes have mostly not been able to show adequate

enthusiasm, willingness and appetite for long term investments in infrastructural projects.

As noted earlier, the rationale for providing such huge capital grant by the Government was

based on the assumption that without such grants, the large infrastructural projects may not

be commercially sustainable. It was assumed that initially such projects may not have

sufficient capacity utilization and may face revenue deficits, although overall the projects

would credit worthy and financially viable

In most cases, the SPVs/ promoters have developed cold feet in facing the challenges of

raising adequate capital for projects which have long gestation period and thus many of the

projects were not completed. This may have also happened due to inability of the private

sector promoters to raise requisite debt, with reasonable rate of interest and sufficiently long

repayment period, even as the very nature of the private sector requires quick returns and

ready cash flows for continuance of operations. In some other cases, the SPVs have been

eager to utilize common facilities for their own benefits rather than passing them on to

individual entrepreneurs for setting up units in the park. Such deviations in project

implementation have put a question mark on the entire rationale of private sector driven

implementation of schemes and programs

Recommendations

The recommendations made in the study have been categorized into the following:

III. Recommendations for Restructuring of Schemes and Programmes

IV. Recommendations for Banks/ Financial Institutions

(I) Recommendations for Restructuring of Schemes and Programmes

In view of this, some suggestions have been put forward in the following sections which, in

our view, would make these schemes and projects more investment friendly and successful in

the long run

(1) Grant restructuring



One of the main objectives of providing financial assistance by the Government to the SPV is

to ensure the benefits are passed on to the end users. It has often been argued that the huge

investments made for the project do not translate into the intended purpose. In many cases, it

has been observed that SPVs often fail to pass on the benefits/assistance received from the

government proportionately to the entrepreneurs/units. It is also a matter of concern that these

investments may not be efficiently utilized thereby making the infrastructure and capital

expenditure inefficacious and idle. So, such unproductive capital infrastructure may not be

beneficial to the investors i.e. promoters, banking institutions and government agencies

• In order to mitigate such risks, restructuring of the financial assistance may be

designed appropriately to ensure proper long term utilization of the created assets and

to ensure that the grant assistance may also be passed on to the entrepreneurs/units in

the park. One option is to divide the total grant amount in two parts-one may be given

directly to the SPV as assistance to develop the park and the other part may be given

directly to the units as grant assistance

• To ensure proper operationalization of the facilities created, the grant assistance may

be divided into ‘capital subsidy’ (for creation of infrastructure) and ‘interest

subvention’ facility which will be provided during an initial fixed period. The interest

subvention facility would only be provided to the SPV on yearly basis on successful

operations of the facilities/infrastructure. Such initiative has already been taken by

some Ministries such as MoT for Technology Upgradation Fund Scheme (TUFS) and

MoFPI for the Scheme for Cold Chain, Value Addition and Preservation

Infrastructure under the National Mission of Food Processing

• It has been observed that in many of the industrial parks, the intended numbers of

units are not coming up for various reasons as discussed earlier. Keeping the interests

of units as well as of SPV and to ensure setting up of proper number of units, MFPS

guidelines have been modified by linking release of grant amount to the leasing out of

the plots to independent units. The revised guidelines of MFPS make it inter alia

mandatory for SPV to allot at least 25% of the total allotable plots for becoming

eligible for the release of 3rd instalment of grant. Similarly, before the release of 4th

and final instalment of grant-in-aid, SPV is required to allot at least 75% of the total

allotable plots and commencement of operations in at least 25% of the units

• Another way to ensure proper operationalization of the facilities created would be to

carve out a part of the allocated grant for specific purposes. For example, about 80%



of the total admissible grant may be disbursed for infrastructure creation. Of the

balance 20% of grant admissible, 50% may be structured as seed funding / working

capital funding once the units in the respective projects are ready to get operational.

The remaining 50% may be escrowed in the SPVs bank account as a bonus / penalty

for timely completion of project. The bonus / penalty, so structured, would be

appropriated only on lenders comforts. If the SPV insists on lenders for release of

such amounts, same could be done after a Bank Guarantee is furnished by the SPV to

the lenders for the amount being transferred. This way, lenders would have an

additional security for any unforeseen dips in revenue, which may hamper any

payment obligations. Similar structures could be worked for various schemes,

depending upon the nature of projects, the extent of capital required by units at start

up stage and examining the amount of lender involvement required. The percentages

suggested above are only indicative in nature and is a representation for making

schemes work better and address various quarters of stakeholders. Specifics would

need to be worked out in consultation with all stakeholders involved

(2) Project Implementation

• Under different schemes, the project proposals are either invited as Expression of

Interest (EoI) or the assistance under the schemes is available on ‘on-tap’ basis.24 The

selection of proposals through EoIs is generally accepted as a transparent way of

selection with well-defined appraisal process and evaluation criteria. Many a time,

when the number of project slots is limited due to budget constraints or other reasons,

selection through invitation of EoIs ensures that the best proposals/projects are

selected for grant assistance. However, the process for selecting proposals through

EoI may sometimes become cumbersome and lengthy. Also, as there are limited slots

available, the certainty for the proposals to be supported by the government is not

ensured even if all the eligibility criteria are met by the proposals. In such a scenario,

for the promoters, the timeline for the project implementation may be compromised

and may lead to higher costs. Also, unlike ‘on-tap’ schemes, where applicants have a

sufficient time window to apply for the financial assistance, EoI restricts the time for

applying for the grant-in-aid. The applicants may not get sufficient time for fulfilling

compliance conditions and incomplete and ill-prepared proposals may lead to delay in

24

On-tap schemes are open schemes which do not have fixed deadlines to apply for grant assistance by eligible promoters.



selection. In view of this, the Ministries/ Departments should ensure predictability in

the selection process in terms of number of the projects to be supported and the

timeline of the selection process. On the other hand, number of projects to be selected

in case of ‘on-tap’ method depends on availability of the funds with the government.

While the funds provided for the scheme for a particular year is generally fixed,

predictability for the number of proposals to get through is quite less. Moreover, as

the selection on ‘on-tap’ basis is an open and ongoing process and generally there are

no transparent and standard evaluation criteria, it may sometimes lead to

inefficiencies and undesirable procedural implications

• In some cases, terms and conditions for selection and implementation of the projects

are so cumbersome that it becomes difficult for the projects to take off. For example,

during initial phase of MFPS, it was mandatory to have five independent members to

form an SPV. It was found that such a condition discouraged established and big

industry players to apply. Later on, the mandatory numbers of members in the SPV

was reduced to three. After realizing the glitches in the implementation framework in

such cases, now even a single entity owned SPV has been made eligible under the

scheme. Hence, the terms and conditions for the selection and implementation of the

projects should be simplified to ensure efficient implementation of the projects by

considering the practicability and ground realities

• In most of the schemes, SPVs are expected to determine lease rentals or price of the

land based on total cost of developed plots including creation of basic enabling

infrastructure etc. Generally, there is no direct role of the Ministries to supervise the

pricing mechanism adopted by the SPVs in this regard. Many a time, even the SPVs

have no standard procedure for the same. While it is not desirable that the

Government should enter into procedures for price determination for the plots by

SPVs since it may be detrimental to the project development itself, however, the

Ministries may encourage the SPVs to adopt a transparent and an unambiguous

pricing mechanism that would make the project viable and also ensure that the

assistance received from the Ministries are also passed on to the units coming up in

the parks

• As discussed earlier, the private sector involvement has not been very encouraging in

implementation of such projects on PPP basis. Considering the challenges and

constraints for implementation of PPP projects from past years, there is a need to



revise PPP model and reconsider the roles and responsibilities of key stakeholders.

The involvement of state agencies may be increased and such agencies may be given

the ownership and implementation responsibility of the projects. Private sector may

be allotted the task of O&M for the projects

• It is also advisable to ensure active involvement of banks in designing, revising and

launching of schemes and programs to support industrial infrastructure projects. The

banks as an important stakeholder should be involved in the decision making process

in this regard.

(3) Categorization as ‘Infrastructure Lending’ Projects

Industrial parks generally face challenges such as low returns on huge investments and often

fail to address its financial concerns. SPVs face such issues due to high capital & operating

costs and limited market penetration. They also have to grapple with procurement issues

which lead to low capital utilization. Moreover, it has often been observed that industrial

parks are considered as ‘Real Estate’ projects rather than ‘Infrastructure Lending’ projects by

the banks and financial institutions. This leads to difficulty in accessing easy and better credit

facilities from lending banks

In view of this, to tackle the issues of financial viability of such projects, the Government

may consider the Industrial Parks as ‘Infrastructure Lending’ projects as the RBI provides a

differential treatment to a credit facility categorized as “Infrastructure Lending”. As per RBI

norms, ‘Infrastructure Lending’ inter-alia includes “common infrastructure for industrial

parks, SEZ, Post harvest storage infrastructure for agriculture and horticultural produce

including cold storage, Cold chain25”. Based on this definition, the Industrial Parks should be

categorized as ‘Infrastructure Lending’ Projects. Such categorization of the projects would

provide the following benefits:

• Infrastructure Status would allow the SPV to claim tax benefits as per section 80-IA

of the Income Tax Act which allows deduction of 100% profit from its income during

initial 5 years of operation and then 30% deduction of profit from income during

another 5 years. For this purpose, ‘infrastructure’ already covers electricity, water

supply, sewerage, telecom, roads & bridges, ports, airports, railways, irrigation,

storage (at ports) and industrial parks/SEZ

25

Cold chain includes cold room facility for farm level pre-cooling, for preservation of storage of agriculture and allied produce, marine products and meat.



• Categorization of projects as “infrastructure lending” allows banks and financial

institutions to provide better terms and conditions to borrowers for infrastructure

projects. This becomes possible due to, inter-alia, lower provisioning requirements for

banks in terms of these loans, banks allowed to classify their investments in non-SLR

bonds issued by companies engaged in infrastructure activities and having a minimum

residual maturity of seven years under the held to maturity (HTM) category etc. This

may help the SPVs to set up their units by accessing long term credit facilities at

lower rates of interest

(II) Recommendations for Banks/ Financial Institutions

Based on in-depth analysis of the major challenges in the implementation and operations of

common industrial infrastructure for MSME projects, the recommendations for banks/ FIs for

increasing bankability and financing of such projects are given below:

(1) Knowledge and Understanding of Different Schemes for Common Industrial

Infrastructure

As mentioned earlier, bankers generally have serious apprehensions regarding lending to

large common industrial infrastructural projects in spite of huge financial assistance from

government for these projects. One of the main reasons is lack of information &

understanding of the nature of such projects, schemes & programs of GoI. There is little

interaction between the bankers (and banking bodies) and the Ministries/Departments leading

to information gap. The banks/ FIs generally lack the understanding of the nuances of the

schemes and programs especially in terms of the project concepts, business plans, eligible &

ineligible components and activities. Many times a project appraised and funded by the

banks/ FIs under a scheme does not fully adhere to the requirements of the scheme and there

are variances which may delay or cancel the project at a later stage. For example, there are

instances that although the procurement and marketing by the SPVs are not allowed under

certain schemes, the bank appraisal notes consider revenue assumptions for SPVs through

these activities and hence deviating from the requirements of the scheme. It has also been

seen in certain cases that although the scheme allows only leasing (not sale) of plots to the

units, however, the business plan proposed by the SPVs envisage sale of plots to the units.

These kinds of variances can delay the project approval and implementation process. It is

important to note in this context that the approval of a project by the Ministry under a certain

scheme does not necessary mean that the entire DPR has been vetted by the Ministry and



issues may come up at a later stage of the project implementation due to variances with the

scheme guidelines.

To address this, the banks/ FIs should actively study and analyze the different schemes for

common industrial infrastructure. They should also continuously follow up with Ministries

for any changes in the scheme guidelines. State Level Bankers’ Committees (SLBCs) should

be encouraged to disseminate information regarding project status and getting feedback from

banks regarding their experience in this regard. Involvement of Lead Bank at district level

where the projects are coming up may also help in the process.

Quality of Appraisal of Projects by Banks/ FIs

It has also been noticed that the quality & details captured by the banks in project appraisals

vary greatly from bank to bank. Some banks do conduct proper appraisals and capture all

necessary details in the appraisal report before sanctioning term loans to projects. However,

there are many banks which do not conduct proper appraisal and hence have limited

understanding of the project and the business model. It has been observed that many times

TEV reports submitted by consultants become the basis for project approval without proper

validation. This leads to sanctioning of term loans to unviable projects resulting in defaults

and NPA. In this regard, the banks/ FIs should develop certain standards for appraisal of such

infrastructure development projects and all the banks/ FIs should be encouraged to follow

such standards for the appraisal process. The banks/FIs should also create PPP cells which

would deal with large common infrastructure development projects and the employees in the

cell should be adequately trained for the same

(2) SPV/ Promoter Level

Generally, common industrial infrastructure projects do not have one single promoter or

promoter group and they are promoted by SPVs which have unrelated and independent

promoters/ shareholders. This sometimes may lead to slow progress due to lack of

coordination among the different SPV members. Moreover, there can be conflict amongst

independent/ unrelated promoters due to the lack of understanding and clearly delineated

roles and responsibilities for management of the SPV. The lack of role clarity and

understanding among the SPV members may also lead to serious conflict for larger control

and representation in the management of the SPV and project. There are instances of

promoters taking legal course by approaching Company Law Board due to such conflicts.



Such issues may cause inordinate delays in the project implementation and result in lack of

progress. In view of this, it is imperative that the banks/ FIs conduct serious appraisal and

strict due diligence of SPV structure and ownership especially related to the clarity of roles &

responsibilities and management structure of the SPV. Proper attention to these aspects of the

SPVs with more effort and time may help the banks/ FIs to avoid avoidable delays in the

progress of the projects.

(3) Statutory Approvals

The common industrial infrastructure projects typically require a large number of statutory

approvals ranging from CLUs for land to environmental clearances for project construction

and implementation. Moreover, many times further complexities may arise during the

implementation which may require further approvals/ clearances from the concerned

departments. It is critical to understand the requirements of different statutory approvals so

that the project can be designed and planned accordingly. Otherwise, inordinate delays may

result in the project implementation due to issues with obtaining statutory approvals. The

common industrial infrastructure projects generally require large contiguous land areas and it

is unusual to expect that there will be no issues with approvals/ clearances for such large tract

of contiguous land areas. Many times there are existing irrigation channels running through

the land and removal for these channels requires permission from Department of Irrigation.

Similarly, felling of trees in the land would require permission from the Forest Department.

Also, in certain states the permission for acquisition of large tract of land and CLU for

industrial purpose is accorded by the highest decision makers. Due to this, obtaining such

permissions make take long time causing delaying in the project implementation.

Similarly, many hindrances may occur while obtaining environmental clearances for the

projects. It is very important to assess the environmental concerns regarding the project at an

early stage of project designing. During the project appraisal the banks/ FIs should critically

assess the environmental risks such as whether the land is located in Ecologically/

Environmentally Sensitive Area or Coastal Regulation Zone. The banks/ FIs should also

assess whether the project would require an Environmental Clearance as there are minimum

requirements regarding land and built up area for qualifying for environmental clearance.

Also, there are multiple steps in obtaining environmental clearance such consent to establish

and consent to operate from state Pollution Control Boards (PCBs). Hence, clear



understanding and assessment of different types of statutory approvals and clearances is vital

for a proper appraisal of a project by the banks/ FIs.

(4) Creation of Security

As mentioned earlier, in common industrial infrastructure projects, generally all project

assets, including land & buildings, are mortgaged to the lenders in case of financing of SPV.

Thus, the members/unit promoters cannot mortgage the same directly to its lenders. The plot

of land (and building, in few cases) is provided on leave & license or lease to the member.

Therefore, the member can mortgage its leasehold rights under the lease agreement in favour

of its lenders. However, as the lease agreement provides for recovery of debt service dues,

and the asset is already mortgaged to SPV lenders, the mortgage of leasehold rights is always

subordinate to the rights of the SPV lenders. Therefore, usually SPV lenders provide second

charge on the land (and building, as the case may be) in favour of the lenders to the unit. The

above arrangement leads to discomfort amongst some members of SPVs.

The above mentioned challenge may be addressed through following arrangements:

• One possible solution may be that the entire land is not mortgaged to lenders by SPV.

The land area available for Core Processing Facilities (Common Facilities) and for

basic enabling infrastructure only may be mortgaged by SPV to the banks for term

loan purposes by keeping the land area for units free of mortgage. In this way, the

units coming up in such parks will be able to arrange finances by mortgaging the plots

to the banks. Such arrangement has already been taken up in some of schemes.

• In most of the industrial parks, the title of the land is never conveyed to the units/

members, as the Government Schemes require the assets to be vested in the SPV. In

such cases, the land/plots are given on long term leases to each unit separately. The

units may be required to pay annual lease rentals to the SPV towards the plots. In this

way, there would be no capital expenditure on land and the lease rentals would

become a part of operating costs of the unit. In such cases, as the cost of land is not a

part of project capital cost, the land may not be used as mortgage by the bank. The

P&M and other assets may be used for mortgage for leveraging bank finance

• The bank(s)/consortium of banks which have extended the financial support to the

SPV for the project should be encouraged to provide term loans to the units in the

park. As the lending bank(s) already have a fair idea about the project components,

financial projections, the viability of the project and overall project structure, their



comfort level would be higher regarding such units. Also as the land for the park is

already mortgaged to the bank(s), they would most likely come up with suitable

arrangement for further lending to the units

• To encourage common infrastructure projects, it is also suggested that banks may be

more flexible in releasing of partial security. This would streamline compliances by

the SPV, reduce its administrative costs and also encourage clear and discrete division

of responsibilities between members

(5) Project Structuring Options for Improving Bankability

Several structures have been introduced to improve the creditworthiness of SPVs promoting

common infrastructure projects. IL&FS has been the pioneer in arranging debt finance for

cluster projects and has arranged loans for several industrial cluster projects. It has raised

loans from banks, institutions like SIDBI, LIC, IIFCL, and has also taken debt exposure in

few projects. As mentioned earlier, due to distributed ownership, and mutually exclusive debt

service obligations of the members, there could be shortfall in debt service in some of the

months. To address this, IL&FS has used the following two measures:

• Debt Service Reserve Account (DSRA): In the project cost, provision is made for

DSRA which is equivalent to 6 months’ debt service obligation of the SPV. Thus, in

case of temporary mismatch in cash flows of the SPV, the DSRA can be used to

ensure timely repayment to the lenders. Therefore, if all the members default in

repayment, the loan can become NPA only after 6 months, and likelihood of all

members or even a significant proportion of members defaulting is limited

• Common Debt Service Fund (CDSF): In some of the projects, an additional reserve

is stipulated. This involves collection of an additional amount equivalent to 10% of

monthly debt service payment by each member, which is kept in a separate account.

The CDSF is collected till the balance is equivalent to 50% of net outstanding term

loan allocated to the member. In case of any temporary shortfall or default in payment

in any month by the member, the CDSF can be used to make payment to the lenders

Considering the nature of the large infrastructural projects with different types and tenure of

revenue generations, the banks, instead of a blanket fit for all repayment schedules, should

come up with innovative loan products with repayment schedules aligned to the revenue

generation



The banks may also consider creating other innovative risk mitigation strategies to protect its

loans for these kinds of projections. Products in line with the Credit Guarantee Scheme

(CGS) of GoI & SIDBI, suitably modified for large infrastructural projects, should be

developed. Other forms of innovations such as risk sharing funds, insurance mechanism for

credit risk etc. may also be explored in this regard. The banks may also incorporate suitable

ways of bringing in new promoters/ management and/ or funds into the project to help

recover the projects in case of default due to low operational level etc.



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AnnexureAnnexureAnnexureAnnexure----1 1 1 1

• Study of existing PPP models, schemes and programs presently being implemented by

various central government ministries for promoting industrial infrastructure for MSMEs.

• Performance of such PPP models and other models of assistance

• Major challenges being faced by such programs and issues involved

• Impact of such PPP based programs and other such models

• Success Stories for such models and its potential for replication

• Legal and regulatory framework for projects under such schemes and programs.

• Operation and Management framework for such PPP models of assistance including

various structures of Special Purpose Vehicles (SPVs) being used (in PPP and Private

projects)

• Financial Models for raising funds for capital expenditure for such projects

• Project structuring for creation of mortgage rights/other securities for lenders to facilitate

debt for project

• Response of banks and financial institutions towards funding of such projects and

challenges being faced in this regard

• Existing policy constraints (land, other statutory approvals etc.) for such PPP based

schemes/programs

• Assessment of demand for such projects in the country vis-à-vis schemes/programs

promoting these projects

• Policy recommendations for addressing key concerns of banks and financial institutions

for such projects.


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AnnexureAnnexureAnnexureAnnexure----2222

S No. Scheme Beneficiary/Eligibility Intervention GOI Contribution Remarks / Benefits

1 Micro and Small Enterprises - Cluster development Programme

A minimum of 20 MSE units required to be member of the SPV

A combination of Hard and Soft interventions, as emerging from the Diagnostic study. They can be:

� Creation of Common FacilityCentres

� Infrastructure Development

The GOI contribution is as follows: � For preparation of Diagnostic

Study Report: Rs 2.50 lakhs � For Soft Intervention, contribution

will be 75% and 90% for North Eastern states and for clusters where more than 50% are women, SC/ST units.

� For Detailed Project Report, GOI will contribute Rs 5 lakhs.

� For Setting up CFC, GOI will contribute maximum 70% of the total project cost and 90% for NE states.

� For Infrastructure Development, GOI will contribute maximum 60% of the total project cost and 80% incase of North Eastern and hill states.

(i) Scheme under Ministry of Micro, Small and Medium Enterprises (ii) The scheme is open to all industries and follows a collective approach of development (iii) The GOI contribution does not include land and civil works cost (iv) The scheme has been utilized largely only for softer interventions as of March 2006, thus the Ministry has decided to broad base the scheme for including HARD interventions

2 Modified Industrial Infrastructure Upgradation Scheme

State Implementing Agencies Support to be provided for developing Common infrastructure, ICT infrastructure, R&D Infrastructure (Research), Quality Certification Center, International Marketing Infrastructure, Infrastructure for process reengineering

75% of the project cost subject to a ceiling of Rs. 50 crores.

(i) Scheme under Ministry of Commerce & Industries, Department of Industrial Policy & Promotion (ii) Only selected existing, high potential bearing clusters to be provided funding limited to Rs. 50 crores (iii) Follows a very inclusive approach of Development (iv) Post marketed facility, which may not have sector specific infrastructure in so far as some capital goods sub sectors are concerned (v) Not extended to green field clusters especially sectors which may need to be catered to, like heavy engineering


187

3 Scheme for Integrated Textile Parks

SPV formed by likeminded entrepreneurs in the textile value chain of activities

Support to be provided for developing Common infrastructure, Factory Buildings, Common Facilities and Plant & Machinery

Grant support to the extent of 40 % of the Project cost or Rs. 40 crores, whichever is lower. For NE states and Jammu & Kashmir, this support can be 90% of total project cost with a maximum ceiling of Rs. 40 crores.

(i) Scheme under Ministry of Textiles (ii) Textile Machinery Manufacturing is not included to extend benefits of this scheme (iii) Industry is the torch bearer of the scheme with Government as a facilitator (iv) Facilities being developed are pre marketed so as to map every participants requirements and provide for them, thereby ensuring adequate viability (v) Grant money cannot be used for land purchase.

4 Scheme for Development of AYUSH clusters

SPV formed by likeminded entrepreneurs from AYUSH sector

The interventions are as follows: Primary Interventions

� First Level Processing � Testing facilities � Laboratories � Quality control and standards

Add on Interventions

� Common Marketing Brochure � Common Website � Joint Participation in National

and International Exhibitions � Business Delegations Abroad � Brand development and

promotion � Infrastructure to support the

production units such as water supply, roads, sewerage, effluent treatment, power supply, boundary wall etc.

The assistance would be restricted to 60 % of the Project Cost subject to a maximum of Rs 10 crores.

(i) Scheme under Ministry of Health and Family Welfare

(ii) The scheme requires atleast 15 enterprises

to form the SPV in a cluster. Given the geographical dispersion of availability of raw materials, it proves to be a limiting factor for such an arrangement


188

5 Mega Food Park Scheme SPV formed by individuals, private enterprises from the food sector. (Earlier there was a requirement of more than one individual to form the SPV, but now it has been changed to one individual also)

The interventions will comprise of the following:

� Core Processing Facilities, Factory Buildings, Enabling Basic Infrastructure, Non-crore Infrastructures.

� Establishment of 30-35 processing units in each park

� Direct and Indirect employment creation of upto 30,000

The GOI contribution will be a capital grant as of 75% of the total eligible project cost for general areas and 90% of total project cost for hilly and difficult areas respectively subject to a ceiling of R. 50 crores

(i) Scheme under Ministry of Food Processing Industries

(ii) Cost of land is not included in the Grant component.

(iii) 50% of the total project cost should constitute of core processing facilities

(iv) An integrative approach which envisages to connect farms with processors through creation of Primary Processing Centers and Central Processing Centers

6 Scheme for Cold Chain, Value Addition and Preservation Infrastructure

Individuals, Private Enterprises, Self Help Groups, NGOs, Public Sector Units, Farmer Producer Organizations etc

The interventions will comprise of the following for components:

a. Farm level processing centers,

b. Pre-cooling vans and reefer vans,

c. Distribution hubs and d. Irradiation facility

The financial assistance will be 50% of the total cost of Plant and Machinery and Technical civil works in general areas and 75% in case of NE states and hilly areas, with a limit of Rs 10 crores.

(i) Scheme under Ministry of Food Processing Industries

(ii) Out of component (a), (b) and (c) any two has to be put up the promoters on their own to be eligible for financial assistance.

(iii) Component (d) is eligible to considered as a separate project for availing the grant.

7 Comprehensive Handicraft Cluster Development Scheme

SPV preferably a Company with the participation of related stakeholders, particularly the leading manufacturers, suppliers, buyers, and artisan federations/SHGs.

The interventions will be in the following areas: � Common facility centers; � CAD Centres; � Communication Network; � Design Banks; � Establishment of Resource

Centers for major crafts; � Building Marketing

Infrastructure; � Creation of Raw Material Banks.

The GOI assistance is designed as follows: � Soft skills such as skill development

Training, Product Development workshop, etc: Rs 10 crores/ project

� Common production related Infrastructure which are artisan centric such as CFC, Work shed, etc: Rs 20 crores/ project

� Other commercial infrastructure – such Gas pipe line, etc: Rs 20 crores/ project

� Facility Centers for Exporters/entrepreneurs: Rs. 2 crores/ facility centre/Entrepreneur

(i) Scheme under Ministry of Textiles (ii) The SPV can also finance their

requirement by dovetailing into other state and central government schemes

(iii) The funding categories can be broadly

divided into the following three types: � First type could be a project in

which specific scheme of Govt. of India exists

� Second type could be those specific interventions, which are required for growth of the Handicrafts cluster and are covered as a part of scheme of the Office of the Development Commissioner [Handicrafts].

� Third type of intervention relate to missing gaps, not covered under the scheme of Central or State Government


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8 Mega Leather Cluster SPV formed by private companies engaged in leather industry value chain, industry organizations registered under Societies Act, financial institutions, R&D institutions, State or Local governments or their agencies and units within the Leather Industry.

The primary interventions are as follows: � Core Infrastructure � Social Infrastructure � Production Infrastructure � Human Resource

Development � Research and Development

Infrastructure � Export related infrastructure

The GOI assistance can be 50% of the total project cost. The GOI assistance is subject to the following limitations:

� 20-60 acres land(without tanneries): Upto Rs. 50 crore

� 40-60 acres land(with tanneries): Upto Rs. 50 crores

� 61-100 acres land: Upto Rs 70 crore

� 101-150 acres land: Upto Rs. 105 crore

� More than 150 acres land: Upto 125 crore

(i) Scheme under Ministry of Commerce & Industries, Department of Industrial Policy and Promotion

(ii) Land development is a major component of this scheme. Although there is no direct assistance in land procurement, financial assistance is linked proportionately with the land size.

9 Plastic Parks SPV formed by the consortium of the following: � User enterprises representing the

manufacturing value chain � Mother/ anchor enterprise

representing the plastic sector/sub sector together with ancillary enterprises

� A large infrastructure developer/ financial investor in association with user enterprises representing the plastic sector / sub sector

� Any Central/ State Government agency in association with user enterprises representing the plastic sector/ sub sector.

Support to be provided for the following: � Infrastructure to support

production units � Buildings for support � Buildings and equipment /

machinery for common facilities The scheme shall also support initiatives which are soft in nature to ensure that the capacity of the beneficiary SPV and member enterprises is suitably strengthened in order to absorb, implement and sustain the proposed initiatives. These illustratively could include surveys /studies, sensitization /awareness generation, skill development / training at various levels, exposure visits etc.

The GOI assistance will be 50% of the total project cost with a limit of Rs. 40 crore per project.

(i) Scheme under Ministry of Chemicals and Fertlizers

(ii) Usage of the financial assistance has to be in the following way:

� 25% for common enabling facilities

� 5% for administrative and management support

� 5% for civil works

10 Electronic and Manufacturing Clusters Scheme

SPV formed by private enterprises. Industry associations, R&D Institutions, State or Local Institutions

� The scheme has to two parts: Brownfield EMCs, Greenfield EMCs.

� Interventions will mainly focus on the following: R&D center, tool rooms, training center and captive power generation.

� For Greenfield EMCs, the assistance will be 50% of the total project cost with a limitation of Rs 50 crores for every 100 acres of land. For larger sized cluster, the limit would be decided by pro-rata basis

� For Brownfield EMCs, the assistance will be 75% of the total project cost with a maximum limit of Rs. 50 crore.

(i) Scheme under Ministry of Communications and IT

(ii) The scheme is participatory in nature. In case of Brownfield EMCs, of the remaining project cost (after deduction of the GOI assistance) a minimum of 25% has to be financed by the units in the EMC. Similarly for Greenfield EMCs, 15% of the remaining project cost has to be financed by the unit.

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